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The International Monetary Fund has delivered a cautious assessment of the world economy, projecting a slowdown in global growth to 3.2 per cent in 2025 and 3.1 per cent in 2026, as trade tensions and policy shifts cast a shadow over recovery efforts. In its latest World Economic Outlook, released on Tuesday, the IMF highlighted the lingering effects of US tariffs and supply chain disruptions, which have tempered earlier optimism despite resilient performance in the first half of the year. The report comes as finance ministers and central bankers convene in Washington for the IMF and World Bank’s annual meetings, underscoring the need for coordinated action to navigate an increasingly volatile landscape.
The fund’s projections represent an upward revision from April’s estimates, attributed to front-loading of imports ahead of tariffs and supportive fiscal measures in key economies. However, risks remain tilted downwards, with advanced economies expected to expand at just 1.5 per cent annually, while emerging markets and developing economies hover above 4 per cent. IMF Managing Director Kristalina Georgieva emphasised the importance of “credible and sustainable policies” to rebuild economic buffers and foster medium-term growth, warning that unresolved trade disputes could exacerbate inflation and hinder investment.
Trade Barriers and Inflation Pressures
Central to the IMF’s concerns is the impact of escalating tariffs, particularly those imposed by the US in response to Chinese export restrictions on rare-earth minerals critical for high-tech industries. The report notes that while stockpiling has delayed the full brunt of these measures until late 2025, a “sharp deceleration in goods trade” is anticipated thereafter. In the US, inflation is forecast to rebound in the second half of next year as tariff costs filter through supply chains to consumers, potentially complicating the Federal Reserve’s efforts to ease monetary policy.
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Emerging economies face particular vulnerabilities. The World Bank’s parallel Global Economic Prospects report echoes these worries, downgrading 2025 growth for emerging markets and developing economies to 2.3 per cent—a significant cut from prior forecasts—citing heightened trade restrictions and uncertainty. Regions like East Asia and Europe and Central Asia, heavily reliant on global commerce, are projected to see the sharpest slowdowns. In Latin America and the Caribbean, growth is expected to hold steady at 2.3 per cent, though Mexico’s close ties to the US economy leave it exposed to spillover effects.
On a brighter note, the UN Conference on Trade and Development reported that global trade expanded by about $500 billion in the first half of 2025, buoyed by rising South-South exchanges among developing nations. This resilience has helped narrow trade imbalances, but the UNCTAD update cautions that volatility from geopolitical tensions could erode these gains.
Policy Recommendations and Global Outlook
The IMF advocates for measures to promote healthy ageing, reduce gender disparities in the workforce, and align migrant skills with labour demands, alongside targeted infrastructure spending to counter fiscal strains. It estimates that clearer trade agreements could boost global output by 0.4 per cent in the near term, with a return to pre-2025 tariff levels adding another 0.3 per cent.
Reactions from policymakers have been measured. US Treasury Secretary Janet Yellen described the outlook as “manageable” during a briefing, pledging to prioritise domestic investment in AI and clean energy to offset trade headwinds. Meanwhile, European officials called for multilateral reforms to the WTO to address imbalances.
As discussions unfold at the annual meetings—amid talks on a potential US bailout for Argentina and renewed pressure on Russia—the IMF’s report serves as a stark reminder of the interconnected risks facing the global economy. With temporary supports like inventory build-ups fading, the path to sustained growth will hinge on diplomatic breakthroughs and prudent policymaking. For businesses and households alike, the message is clear: preparation for a more fragmented trade environment is essential.
