IMF Optimistic on US Growth, but Outlook Dims Compared to Last Year
The US and global economies are projected to experience slightly stronger growth this year than earlier estimates suggested, according to the International Monetary Fund’s statement on Tuesday. The IMF noted that the tariffs imposed by the Trump administration have, to date, been less disruptive than anticipated, although it cautioned that the extensive duties continue to present risks. The IMF projected that the United States’ economy will expand by 2 per cent in 2025 in its influential semiannual forecast, the World Economic Outlook. That figure is marginally above the 1.9 percent projection provided in the IMF’s previous update in July and the 1.8 percent estimate from April. The IMF stated that the US is expected to grow by 2.1 percent next year, which is only one-tenth of a percent faster than its earlier projection. Current forecasts remain lower than those from a year ago, indicating that the international lending agency anticipates the tariffs will undermine the US economy, partly by generating increased uncertainty for businesses. In October of last year, the IMF projected that the US economy would expand by 2.2 percent in the current year. All the projections indicate a deceleration from 2024, when the US economy grew at a more robust rate of 2.8 percent.
The global economy is projected to grow by 3.2 per cent this year, an increase from the 3 per cent estimate made in July, according to the IMF forecast. For 2026, the growth rate remains at 3.1 per cent, consistent with prior estimates. Moody’s downgrade of the US intensifies investor concerns regarding escalating fiscal risks. The IMF stated that although the US and global economies have performed better than anticipated, it is premature to declare them entirely out of danger. President Donald Trump has persisted with tariff threats, and it may take time for shifts in international trade patterns to manifest. On Friday, Trump threatened to impose 100 per cent duties on all imports from China, leading to a significant decline in the stock market. At a news conference, IMF chief economist Pierre-Olivier Gourinchas remarked that the import taxes and persistent threats of additional duties have generated significant uncertainty for numerous businesses, impacting the global economy. “The tariff shock is here, and it is further dimming already weak growth prospects,” he stated. Gourinchas stated that a surge in investment in artificial intelligence, characterized by substantial data centres and significant computing power, has mitigated the negative impact from trade and bolstered the US economy. “Yet if a financial market bubble formed and then burst, it could sharply slow business investment and consumer spending,” he said.
“There are echoes in the current tech investment surge of the dot-com boom of the late 1990s,” he stated. “It was the internet then; it is AI now.” Shares of two companies engaged in the AI sector, AMD and Oracle, which revealed an expanding partnership on Tuesday, have experienced an 80 percent increase this year. “Gains in AI-related stock values have lifted Americans’ wealth and fuelled consumer spending,” Gourinchas said, “just as companies are ramping up their investments in advanced computer chips and building data centres.” He stated that increased spending and investment could lead central banks to raise interest rates over time. Gourinchas provided multiple explanations for the resilience of the US and global economies following the extensive implementation of tariffs earlier this year. “First and foremost, the tariff shock itself is smaller than initially feared, with many trade deals and exemptions,” he stated. “Most countries also refrained from retaliation, keeping the trading system open. The private sector also demonstrated agility, front-loading imports and rerouting supply chains.” By front-loading imports, numerous US companies managed to accumulate goods prior to the implementation of the duties, allowing them to evade or postpone price increases. However, numerous factors merely indicate “temporary relief, rather than underlying strength in economic fundamentals,” according to the IMF’s report. The IMF stated that import price data in the US indicates that, to date, it is primarily importers and retailers who are bearing the brunt of the tariffs, contrary to the expectations of many officials from the Trump administration. The report indicated that, over time, those firms are likely to pass on more of the price hikes to consumers.
The IMF outlook indicated that certain drawbacks of the increased tariffs are beginning to surface. Core inflation, excluding the volatile food and energy categories, has risen to 2.9 per cent, as indicated by the Federal Reserve’s preferred measure, an increase from 2.7 per cent a year prior. Hiring has come to a near standstill, which may be partly indicative of a more cautious stance adopted by numerous firms in light of the uncertainty generated by the increased tariffs. The IMF’s forecasts present a slightly more optimistic outlook compared to the expectations of numerous private-sector economists. The US economy would expand by only 1.8 percent this year and 1.7 percent in 2026. Almost two-thirds of the economists believe that the administration’s duties are indeed hindering growth, potentially by as much as half a percentage point. The IMF reported that China has managed to mitigate the impact of US tariffs by redirecting a greater volume of its goods to Europe and Asia, instead of the United States. The depreciation of its currency has resulted in cheaper exports. The IMF projects that China’s economy will grow by 4.8 per cent this year and 4.2 per cent in 2026, maintaining the same outlook as in July.
Gourinchas stated that China’s economy has become more reliant on exports, while its real estate sector remains burdened by substantial debt levels. “It is increasingly hard to see how this could be sustained,” he added. In Europe, Germany is enhancing growth through increased government spending aimed at strengthening its military, Gourinchas stated. The IMF now anticipates that the 20 countries utilizing the euro will experience a growth of 1.2 percent this year, an increase from the 1 percent forecast made in July, and expects a growth of 1.1 percent next year, consistent with the prediction from three months ago. The IMF is a lending organization comprising 191 nations, dedicated to fostering economic growth, ensuring financial stability, and alleviating global poverty.
