The International Monetary Fund has revised its 2025 global growth forecast to 3 per cent, up from 2.8 per cent in April, citing stronger-than-expected trade activity, improved financial conditions, and easing tariff tensions between the United States and its trading partners.
However, the Fund warned that this resilience remains “tenuous” amid high uncertainty, elevated public debt, and geopolitical risks.
In its World Economic Outlook Update released on Tuesday, the IMF projected global growth would rise slightly to 3.1 per cent in 2026, still below both the pre-pandemic average of 3.7 per cent and the 3.3 per cent seen in 2024.
“This resilience is welcome, but it is also tenuous,” said Pierre-Olivier Gourinchas, the IMF’s Chief Economist. “The current trade environment remains precarious.”
Trade front-loading buoys activity – for now
Much of the global economy’s first-half strength came from front-loading of exports to the US, as companies rushed to beat tariff hikes announced in April. The US partially rolled back these increases in May, bringing the effective tariff rate down to 17 per cent from 24 per cent. Yet, the Fund noted that tariffs remain historically high and could increase again after August 1, when the current pause is set to expire.
In response to this front-loading, real GDP in Europe and Asia saw a boost. The euro area grew by 2.5 per cent in Q1, led by surging exports – particularly from Ireland. China’s economy exceeded expectations with 6 per cent annualised growth, while the US saw a 0.5 per cent contraction due to subdued consumption and inventory distortions.
Financial conditions ease, but risks remain
The IMF noted that financial conditions have improved globally, with equity markets rebounding and the US dollar weakening by around 8 per cent since January. This has provided room for emerging markets to ease policy, even as long-term interest rates in advanced economies have edged higher amid growing fiscal concerns.
Global inflation is expected to fall to 4.2 per cent in 2025 and 3.6 per cent in 2026, broadly in line with April forecasts. However, in the US, inflation is ticking up again, driven by tariff-related cost increases and dollar depreciation. In contrast, the euro area and other large economies are seeing more subdued inflationary trends.
“Without comprehensive agreements, ongoing trade uncertainty could increasingly weigh on investment and activity,” Gourinchas said.
Growth upgrades across the board
The IMF upgraded growth forecasts for most regions. In the US, GDP is now expected to grow by 1.9 per cent in 2025 and 2 per cent in 2026, buoyed by the fiscal stimulus contained in the recently passed One Big Beautiful Bill Act (OBBBA). The Fund estimates this package could raise US output by 0.5 per cent on average through 2030.
China’s growth was revised up by 0.8 percentage points to 4.8 per cent in 2025, reflecting stronger-than-expected performance and reduced tariffs. India is projected to grow by 6.4 per cent in both 2025 and 2026, with both figures slightly higher than earlier estimates.
The euro area is expected to expand by 1 per cent in 2025, supported by front-loaded pharmaceutical exports from Ireland. However, excluding Ireland, the upgrade is more modest. Growth across the Middle East and Central Asia is forecast at 3.4 per cent in 2025, also a 0.4-point upgrade from April.
Outlook clouded by policy uncertainty and debt
Despite the modest upgrades, the IMF warned of significant downside risks. A renewed escalation in tariffs, expiration of temporary trade reprieves, or supply disruptions from geopolitical tensions – especially in the Middle East or Ukraine – could all derail momentum. Elevated public debt levels in economies such as the US, France, and Brazil also heighten financial market risks.
“Countries must reduce policy-induced uncertainty by promoting clear and transparent trade frameworks,” the Fund said.
The IMF urged countries to restore fiscal space and protect central bank independence, cautioning that undermining monetary credibility would weaken efforts to manage inflation and stabilise economies.
In the absence of durable trade agreements, the Fund expects world trade as a share of output to decline from 57 per cent in 2024 to 53 per cent by 2030. It called for multilateral efforts to lower tariffs and modernise trade rules, warning that persistent fragmentation could depress long-term productivity and investment.
