World economy resilient amid Trump tariffs but outlook looks ‘dim’, says IMF | Global economy

The global economy has shown “unexpected resilience” in the face of Donald Trump’s tariffs, but the full impact has not yet been felt and growth prospects remain “gloomy”, the International Monetary Fund (IMF) has warned.

As policymakers gather in Washington for its annual meetings, the IMF raised its forecast for global GDP growth this year to 3.2%, up from 3% when it was last updated in July. The global forecast for next year remains unchanged at 3.1%.

Forecasts for economic growth in the UK have also been revised slightly upwards, from 1.2% to 1.3% this year – although they will be revised down slightly next year, also to 1.3%.

“So far, more protectionist trade measures have had a limited impact on economic activity and prices,” the IMF said in its latest World Economic Outlook (WEO).

The Fund cited the sluggish economic impact of Brexit as evidence that uncertainty triggered by sweeping policy changes such as Trump’s tariffs could take time to filter through into investment decisions.

“Business investment continued to grow in the period immediately following the UK’s withdrawal from the EU and only began to decline steadily from 2018 onwards,” the report said.

He said the tariffs imposed were less extreme than initially feared after Trump’s “liberation day” announcements in April and that their impact was masked by households and businesses bringing forward consumption to get ahead of their introduction.

However, the report highlights a range of concerns about the global outlook, including the risk to US growth from Washington’s crackdown on immigration; “stretched valuations” on stock markets; and the fact that the full effects of the tariffs are only now beginning to manifest.

“Beyond the apparent resilience resulting from trade-related distortions in some of the available data and dizzying growth forecasts due to wild swings in trade policies, the outlook for the global economy continues to suggest a gloomy outlook, both in the short and long term,” he said.

And it highlights more restrictive immigration policies in a number of countries as a source of concern about future economic growth.

In particular, as Trump attacks immigration in the United States, the IMF estimates that US GDP could be reduced by 0.3 to 0.7 percent as a result and that inflation in the most affected sectors could increase.

“Some sectors of the economy in which immigrants make up a large part of the workforce, such as construction, hospitality, personal services, and agricultural work, may experience greater inflationary pressures than others,” the report said.

Echoing a speech last week by IMF Managing Director Kristalina Georgieva, the WEO report also warned of the risks of a “correction” in stock prices – and a slowdown in investment – ​​if markets reassess the likely gains from generative AI.

Underscoring the fact that investors have been surprisingly unresponsive to recent political turmoil, the IMF pointed to “strained valuations.”

He adds that if stock prices fall, “the decline in overall investment could be quite sharp, given that investments in data centers and AI have recently contributed significantly to investment growth.”

In response to the UK’s improved growth forecast this year, Chancellor Rachel Reeves said: “This is the second consecutive revision of this year’s growth forecasts by the IMF. Not surprisingly, Britain led the G7 in growth in the first half of this year, and average disposable income has increased by £800 since the election.”

For the full year, the IMF expects the UK to be the second fastest growing economy in the G7, behind the US, with GDP growth of 2%.

However, inflation is expected to reach its highest level in the G7 in 2025 and 2026. It forecasts that UK inflation will average 3.4% in 2025, up from its previous forecast of 3.2%.

Inflation in the UK is expected to slow slightly to 2.5% next year, above the IMF’s 2.3% forecast made earlier this year.

As well as highlighting the risks to global growth, the World Economic Outlook highlighted the challenges facing the world’s poorest countries in the face of drastic cuts in foreign aid, notably from the UK.

Aid represents a significant share of national income in the most vulnerable countries in the Middle East and Africa, it says, and as well as affecting public services such as health and education, reduced financial support can “increase geopolitical instability, migratory pressures and security risks in fragile regions”.