The International Monetary Fund (IMF) on Tuesday slightly raised its global growth forecast for 2025 and 2026, following a stronger-than-expected increase in purchases before the U.S. tariff hike on Aug. 1, and a drop in the U.S. effective tariff rate to 17.3% from 24.4%.
However, the IMF warned that the global economy still faces significant risks, including the possibility of a rebound in tariffs, geopolitical tensions, and a larger fiscal deficit that could push up interest rates and tighten global financial conditions.
Global inflation is expected to ease to 4.2% in 2024 and 3.6% in 2026, but is expected to remain above target in the United States as the impact of tariffs begins to be felt by consumers in the second half of the year. The U.S. effective tariff rate, measured as import tax revenue relative to total goods imports, has declined since April but is still well above the 2.5% rate in early January. For other countries, the current rate is 3.5%, down from 4.1% in April.
U.S. President Donald Trump has reshaped the global trade landscape by imposing a 10% universal tariff on nearly all countries starting in April, and threatened higher tariffs on Friday. Higher retaliatory tariffs between the U.S. and China are on hold until Aug. 12, while talks in Stockholm this week could extend the hold. The U.S. has also announced steep tariffs of 25%-50% on autos, steel and other metals, while tariffs on pharmaceuticals, lumber and semiconductor chips are still pending.
The IMF has warned that future tariff increases could further increase effective tariff rates, create supply disruptions and worsen the impact of tariffs on growth. The U.S.’s new deals with the European Union and Japan, which were recently reached, come too late to be factored into the July forecast. IMF simulations show global growth in 2025 would be cut by about 0.2 percentage points if all maximum tariffs were implemented.
While the global economy remains resilient for now, uncertainty continues to weigh on investors. Gourinchas said this year’s forecast was helped by a surge in early buying by companies trying to get ahead of the tariffs, but the “stockpiling” effect will not last. “It will wear off and weigh on economic activity in the second half of 2025 and throughout 2026,” he said. He added that U.S. consumer prices have already started to show signs of recovery and tariffs are expected to remain high for some time to come.
The weakening U.S. dollar, a rare occurrence in trade conflicts, has added to the tariff pressure on other countries, even as it has helped ease global financial conditions. U.S. economic growth is expected to reach 1.9% in 2025 and pick up slightly to 2.0% in 2026. The new tax and spending laws are expected to add 1.5 percentage points to the U.S. fiscal deficit, half of which will be covered by tariff revenue.
The IMF also raised its forecast for the eurozone to 1.0% in 2025, while its forecast for 2026 remained at 1.2%. The increase was driven by a surge in pharmaceutical exports from Ireland to the United States. Without this impact, the revision would only be half. The forecast for China was raised by 0.8 percentage points for 2025 and 0.2 percentage points for 2026, reflecting strong growth in the first half of the year and a significant reduction in tariffs between the U.S. and China after a temporary truce was announced.
Overall, growth is expected to reach 4.1% in emerging markets and developing economies in 2025, and 4.0% in 2026. The global trade forecast was also revised up by 0.9 percentage points to 2.6% for 2025, but down by 0.6 percentage points to 1.9% for 2026.
