IMF Lifts 2025 Global Growth Outlook amid Resilient Trade, But Warns on US-China Tensions

The International Monetary Fund (IMF) has raised its global growth projection for 2025, pointing to milder-than-anticipated tariff impacts and supportive financial conditions. Nonetheless, the Fund cautioned that escalating trade hostilities between the U.S. and China—recently threatened by President Donald Trump—could pose a substantial downside risk.

In its latest World Economic Outlook released Tuesday, the IMF highlighted that a series of new trade deals between Washington and major economies have averted the worst-case tariff scenario, with minimal retaliation from affected countries. These positive developments led the IMF to upgrade global growth forecasts for the second time since April.

The Fund now expects global real GDP to expand by 3.2% in 2025, up from the July forecast of 3.0%, and a notable improvement over the April projection of 2.8%. That lower estimate was made following Trump’s introduction of sweeping “reciprocal” tariffs and subsequent escalations with China. For 2026, the IMF maintains its growth outlook at 3.1%.

According to IMF Chief Economist Pierre-Olivier Gourinchas, apart from less severe tariff hikes, global activity has gained from proactive private-sector adjustments—such as accelerated imports and rapid supply chain shifts—along with a weaker U.S. dollar, expansionary fiscal policies in Europe and China, and surging investments in artificial intelligence.

However, President Trump jolted markets on Friday by threatening to levy 100% tariffs on Chinese imports, adding to duties that already average 55%, as a response to China’s stricter export controls on rare earths. U.S. Treasury Secretary Scott Bessent stated on Monday that negotiations are ongoing to avoid a further escalation of trade tensions.

The IMF’s downside analysis indicates that if tariffs rise 30 percentage points above current levels for Chinese imports, and 10 percentage points for goods from Japan, the eurozone, and emerging Asian economies, global growth in 2026 could be reduced by 0.3 percentage points. The negative effect could deepen to over 0.6 percentage points by 2028.

Taking other potential repercussions—such as higher inflation, rising interest rates, and weaker demand for U.S. assets—into account, the IMF estimates that the global GDP could contract by as much as 1.2 percentage points in 2026 and 1.8 percentage points by 2027 under this scenario.

Despite external risks, the IMF’s baseline projections show the U.S. economy remaining robust. Growth is expected to reach 2.0% in 2025, slightly above July’s 1.9% estimate, with a further uptick to 2.1% in 2026, though both figures trail last year’s growth rate of 2.8%. The report credits softer tariff rates, a U.S. Republican lawmaker’s tax-driven fiscal boost, looser financial conditions, and strong AI-driven investment for the improved outlook.

The eurozone’s 2025 growth forecast was nudged up to 1.2% from 1.0%, supported by fiscal stimulus in Germany and ongoing strength in Spain. Japan also saw a notable upgrade, with growth raised to 1.1% for 2025 from 0.7% in July, due to front-loaded trade activity and improved domestic consumption. Growth is set to moderate to 0.6% in 2026, still a slight enhancement over previous estimates.

The IMF held its projections for China steady at 4.8% for 2025 and 4.2% for 2026, noting that recent export-driven growth appears unsustainable. Gourinchas, in a blog post accompanying the report, cautioned that “the outlook remains worrisome in China,” where the property sector continues to struggle, credit demand is flagging, and the risk of a debt-deflation cycle has increased.

Headline global inflation projections were largely unchanged at 4.2% for 2025 and 3.7% for 2026. However, the IMF noted diverging inflation paths, with price pressures rising in the U.S. as companies start transferring tariff costs to consumers, while inflation estimates for Asian exporters—including China, India, and Thailand—were revised downward amid softer growth.

For Thailand, the IMF maintained its 2025 growth forecast at 2.0% but marked down next year’s outlook to 1.6% from 1.7%, the lowest among ASEAN economies. By comparison, Vietnam is expected to post 6.5% growth, followed by the Philippines (5.4%), Indonesia (4.9%), and Malaysia (4.5%).