IMF upgrades global economy outlook, claims less damage than expected from tariff war

The International Monetary Fund raised the economic projection for the world and the US for this year and the next, as President Donald Trump's protectionist trade policies have yet to be as devastating as feared. The IMF predicts 3% growth in the world economy this year. It is less than the 3.3% this year was predicted for 2024 but more than the 2.8% it predicted for 2025 back in April.

The 191-member lender, which is aimed at promoting growth, stabilising the global financial system and cutting poverty, projects world growth to be 3.1% in a year, higher than the 3% it estimated three months ago.

Trump's decision on April 2 - which the president called "Freedom Day" - to impose tariffs of 10% or more on US imports from most of the world was expected to have a further adverse effect on global growth.

But the IMF said the damage was limited, partly because many US importers had already started importing foreign goods before Trump's tariffs took effect and partly because Trump suspended his biggest tariffs, including a 145% tariff on Chinese goods.

"This modest easing of trade tensions, although fragile, has so far contributed to the resilience of the global economy," IMF chief economist Pierre-Olivier Gourinchas said in prepared remarks ahead of the fund's updated forecasts on Tuesday.

"This resilience is welcome, but it is also fragile. While the trade shock may be less severe than initially feared, it is still substantial, and there is growing evidence that it is hurting the global economy," he added.

The tariffs raised $108 billion for the U.S. Treasury from October to June, nearly double the $55.6 billion collected in the same period last fiscal year. Global growth of about 3% is below the pre-pandemic average, and the world economy would have been growing faster without Trump's trade wars.

The IMF raised its forecast for U.S. economic growth to 1.9% this year and 2% in 2026, when the massive tax cut Trump signed into law on July 4 is expected to provide a "near-term boost."

The Chinese economy, the world's second-largest economy, is expected to grow by 4.8% this year, well above the 4% forecast by the IMF in April. China is getting a boost from lower-than-expected U.S. tariffs and government spending.

The 20 economies that share the euro currency are expected to collectively grow by 1%, up from the 0.8% forecast by the IMF in April. But a big chunk of that growth is coming from a surge in pharmaceutical exports from Ireland, timed to beat expected tariffs on medicines by Trump.

Japan is still in a state of slow growth, expected to grow just 0.7% this year and 0.5% next year. India is once again expected to be the world's fastest-growing major economy, projected to expand at 6.4% this year and next.