The world economy has not fallen apart in 2025, which may be either a relief or a worry, depending on how you look at it. After a chaotic first half of U.S. policy upheaval and trade shocks that unleashed a wild but brief rollercoaster on financial markets, the International Monetary Fund's assessment is that global growth and inflation remain pretty much on even keel. The Reuters Tariff Watch newsletter is your daily guide to the latest global trade and tariff news. Sign up here.
IMF economists, opens new tab make the case that economic activity around the world is still relatively subdued compared with historical averages and inflation slightly elevated.
Revising up a prior outlook that was made in the white heat of April's U.S. tariff turmoil, the IMF on Tuesday reckoned the world will sail on with a 3.0% expansion this year and 3.1% next - the latter two tenths slower than 2024 but exactly the average growth rate of the past 10 years.
Virtually every major economy's expected growth was nudged up, with the only exception being a marginal shaving of the forecast for Japan's 2026 expansion. To put it mildly, this is not the singular economic shock some feared in April as trade war drums sounded loudly. And even the IMF's outlook back then was well shy of the deep recession many were fretting about.
To be fair to the IMF, it's been chasing a moving target on tariffs just like everyone else. Despite greater clarity on Washington's endgame over the past week, the issue would have been still in the air as the Fund was formulating these forecasts. But it's hard to escape the fact that as the largest economy in the world embarks on a unilateral protectionist push that upends decades of multilateral agreements and conventions, there's little obvious or immediate economic fallout. That must feel uncomfortable for a doyen of multilateralism such as the IMF - not least given its decades-long espousal of the so-called 'Washington Consensus', the orthodox economic policies that put free and open trade at the apex of its prescriptions.
Explaining the Fund's relatively benign forecast update, IMF chief economist Pierre-Olivier Gourinchas noted that a sharp drop in the dollar flattered the overall global picture, both statistically and by loosening financial conditions broadly
