The International Monetary Fund on Tuesday raised its global growth forecasts for 2025 and 2026 slightly, citing stronger-than-expected purchases ahead of an August 1 jump in U.S. tariffs and a drop in the effective U.S. tariff rate to 17.3% from 24.4%.
It warned, however, that the global economy faced major risks including a potential rebound in tariff rates, geopolitical tensions and larger fiscal deficits that could drive up interest rates and tighten global financial conditions.
"The world economy is still hurting, and it's going to continue hurting with tariffs at that level, even though it's not as bad as it could have been," said Pierre-Olivier Gourinchas, IMF chief economist.
In an update to its World Economic Outlook from April, the IMF raised its global growth forecast by 0.2 percentage point to 3.0% for 2025 and by 0.1 percentage point to 3.1% for 2026. However, that is still below the 3.3% growth it had projected for both years in January and the pre-pandemic historical average of 3.7%.
It said global headline inflation was expected to fall to 4.2% in 2025 and 3.6% in 2026, but noted that inflation would likely remain above target in the U.S. as tariffs passed through to U.S. consumers in the second half of the year.
The U.S. effective tariff rate - measured by import duty revenue as a proportion of goods imports - has dropped since April, but remains far higher than its estimated level of 2.5% in early January. The corresponding tariff rate for the rest of the world is 3.5%, compared with 4.1% in April, the IMF said.
U.S. President Donald Trump has upended global trade by imposing a universal tariff of 10% on nearly all countries from April and threatening even higher duties to kick in on Friday. Far higher tit-for-tat tariffs imposed by the U.S. and China were put on hold until August 12, with talks in Stockholm this week potentially leading to a further extension.
The U.S. has also announced steep duties ranging from 25%-50% on automobiles, steel and other metals, with higher duties soon to be announced on pharmaceuticals, lumber, and semiconductor chips.
Such future tariff increases are not reflected in the IMF numbers, and could raise effective tariff rates further, creating bottlenecks and amplifying the effect of higher tariffs, the IMF said.
SHIFTING TARIFFS
Gourinchas said the IMF was evaluating new 15% tariff deals reached by the U.S. with the European Union and Japan over the past week, which came too late to factor into the July forecast, but said the tariff rates were similar to the 17.3% rate underlying the IMF's forecast.
"Right now, we are not seeing a major change compared to the effective tariff rate that the U.S. is imposing on other countries," he said, adding it was not yet clear if these agreements would last.
"We'll have to see whether these deals are sticking, whether they're unravelled, whether they're followed by other changes in trade policy," he said.
Source : reuters