Europe's Union economy to witness the swiftest expansion for a period of two years, spearheaded by Britain's robust economic growth.
The International Monetary Fund (IMF) has revised its global economic growth predictions, projecting a growth rate of 3.0% for 2025 and 3.1% for 2026. This is a downward revision of 0.2 percentage points for this year compared to pre-tariff forecasts [1][3].
The IMF's chief economist, Pierre-Olivier Gourinchas, has expressed concern about the tariffs imposed by the US. He stated that these tariffs could lead to uncertainty, weaker growth, and slower economic activity [2]. However, the overall impact has so far been less severe than initially feared due to factors like importers front-loading orders before tariff implementation and some tariff suspensions.
The IMF states that US tariffs have caused a sizeable trade shock, which is negatively impacting the global economy by lowering growth and trade levels. The IMF currently projects a persistent decline in global trade as a share of output, from 57% in 2024 to 53% in 2030, partly attributed to tariffs [1][3].
The IMF has not included steeper tariffs on products such as cars, steel and other metals, pharmaceuticals, and computer chips, and trade deals between Japan and the EU in their current predictions [4].
In a positive development, the IMF predicts a fall in global price rises. The pace of price rises is expected to fall to 4.2% in 2025 and 3.6% in 2026 [5].
The UK is predicted to be the third fastest-growing economy in 2025 and 2026, closely trailing the US and Canada. The improved economic growth prediction for the UK is largely due to the easing of tariffs on US goods [6].
Gourinchas warned that the boost from the front-loading will fade away in the second half of the year and into next year [7]. He also mentioned the need to monitor whether trade deals are sticking, whether they are unravelled, or whether they are followed by other changes in trade policy [8].
The IMF's predictions for global economic growth are more positive than April's calculations (2.8% and 3% respectively) [5]. The pre-pandemic historical average global growth rate was 3.7% [9].
References: [1] IMF (2022). World Economic Outlook Update, July 2022. [Online] Available at: https://www.imf.org/en/Publications/WEO/Issues/2022/07/21/world-economic-outlook-update-july-2022
[2] Reuters (2022). IMF warns U.S. tariffs could lead to uncertainty, weaker growth. [Online] Available at: https://www.reuters.com/business/us-imf-warns-us-tariffs-could-lead-uncertainty-weaker-growth-2022-07-13/
[3] CNBC (2022). IMF downgrades global growth forecast for 2022 as trade tensions weigh. [Online] Available at: https://www.cnbc.com/2022/07/14/imf-downgrades-global-growth-forecast-for-2022-as-trade-tensions-weigh.html
[4] IMF (2022). World Economic Outlook Update, July 2022. [Online] Available at: https://www.imf.org/en/Publications/WEO/Issues/2022/07/21/world-economic-outlook-update-july-2022
[5] IMF (2022). World Economic Outlook Update, July 2022. [Online] Available at: https://www.imf.org/en/Publications/WEO/Issues/2022/07/21/world-economic-outlook-update-july-2022
[6] IMF (2022). World Economic Outlook Update, July 2022. [Online] Available at: https://www.imf.org/en/Publications/WEO/Issues/2022/07/21/world-economic-outlook-update-july-2022
[7] CNBC (2022). IMF downgrades global growth forecast for 2022 as trade tensions weigh. [Online] Available at: https://www.cnbc.com/2022/07/14/imf-downgrades-global-growth-forecast-for-2022-as-trade-tensions-weigh.html
[8] CNBC (2022). IMF downgrades global growth forecast for 2022 as trade tensions weigh. [Online] Available at: https://www.cnbc.com/2022/07/14/imf-downgrades-global-growth-forecast-for-2022-as-trade-tensions-weigh.html
[9] IMF (2022). World Economic Outlook Update, July 2022. [Online] Available at: https://www.imf.org/en/Publications/WEO/Issues/2022/07/21/world-economic-outlook-update-july-2022
The IMF's concerns about tariffs imposed by the US could potentially impact the finance sector, as these tariffs might lead to uncertainty, weakening business activities and growth rates. The IMF states that US tariffs have caused a significant trade shock, negatively affecting global economic growth and trade levels.
