- The IMF sees global growth at 3.0% in 2025 and 3.1% in 2026, slightly higher on easier financial conditions, milder tariff effects, and some fiscal support.
- Global inflation is projected to fall from 4.2% in 2025 to 3.6% in 2026, but U.S. inflation stays above target amid tariff and domestic price pressures.
- Regional outcomes diverge, led by India near 6.4% growth while China and the euro area improve modestly yet remain constrained by structural and sectoral headwinds.
- Downside risks dominate, with renewed protectionism, geopolitics, abrupt financial tightening, and weaker fiscal buffers threatening the baseline.
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The International Monetary Fund’s World Economic Outlook Update, July 2025 signals cautious optimism—global growth is expected to rise slightly from the earlier forecast. The 2025 growth forecast of 3.0% has been upgraded by 0.2 percentage points since April, and 2026 growth by 0.1 percentage points, now 3.1% for both years.
This small upward revision is based on a handful of supportive factors: front-loaded trade and investment activity ahead of tariff hikes, lower effective tariff rates since April, easier global financial conditions (including a weaker U.S. dollar), and fiscal expansion in some major economies. Still, overall growth remains about 0.2 percentage point below earlier pre-April 2025 projections, underlining ongoing drag from trade policy strain and geopolitical risks.
Inflationary trends are easing globally. The IMF forecasts headline inflation at 4.2% in 2025 and 3.6% in 2026—improvements from earlier years—but warns that the U.S. inflation rate will stay above central bank targets, in part because of tariff-driven input costs. This suggests room for policy divergence: central banks which overreact to inflation might tighten prematurely; those which underreact risk inflation persistence.
Regionally, dynamics are uneven. India leads major economies with a growth forecast of 6.4% in both 2025 and 2026. China’s growth is revised upwards to 4.8% in 2025 and 4.2% in 2026, bolstered by more favorable trade conditions and domestic stimulus—but remains vulnerable to property-sector strains. The euro area edges up modestly, with Germany and Ireland helping lift the region’s rate to around 1.0%–1.2%. Japan sees some wage pressure and front-loaded trade benefits but lags due to structural constraints.
From an investment banking standpoint, the revised outlook shifts strategic priorities. Better-than-expected growth may support continued issuance in emerging markets, more favorable debt financing conditions, and stronger capital flows into sectors exposed to trade and fiscal stimulus—particularly infrastructure, technology, and green investment. On the flip side, elevated US inflation and pressure from tariffs suggest diligence around cost pressures, cross-border risk, and policy instability.
Key uncertainties remain: whether trade détente can hold; if fiscal deficits and debt levels are sustainable in jurisdictions under pressure; how central banks balance inflation versus growth risks; and whether geopolitical shocks (e.g., Ukraine, China-US friction) or climate-related disruptions trigger sharp downside revisions. Scenario analysis should examine how badly growth slips under adverse trade or financial conditions (IMF warns of some 1.5–2 point downside in worst cases). Proactive risk management—hedging, stress testing—will be essential.
Supporting Notes
- IMF projects global growth at 3.0% in 2025 and 3.1% in 2026, up from April forecasts.
- Global inflation forecast: 4.2% in 2025, declining to 3.6% in 2026. U.S. inflation expected to stay above target due to tariff impacts.
- India’s growth forecast raised to 6.4% for both 2025 and 2026.
- China’s growth forecast improved: 4.8% in 2025, 4.2% in 2026.
- Eurozone growth revised to ~1.0% in 2025 and ~1.2% in 2026, with Germany and Ireland particularly influential.
- Largest downside risks include renewed protectionism, trade relationship breakdowns, financial tightening, geopolitical tensions, and deteriorating fiscal buffers.
- Policy prescriptions: restore fiscal sustainability, maintain central bank independence, reduce uncertainty—especially in trade policy—and undertake structural reforms.