LOC22:34
19:34 GMT
WASHINGTON, Oct 14 (KUNA) -- The International Monetary Fund (IMF) has increased its 2025 global growth forecast to 3.2 percent, however it warned against unrest due ti changes in financial and trade policies.
It its October 2025 World Economic Outlook report, the IMF said the global economy is adjusting to a landscape reshaped by new policy measures.
Some extremes of higher tariffs were tempered, thanks to subsequent deals and resets. But the overall environment remains volatile, and temporary factors that supported activity in the first half of 2025 "such as front-loading" are fading, it added.
As a result, global growth projections in the latest World Economic Outlook (WEO) are revised upward relative to the April 2025 WEO but continue to mark a downward revision relative to the pre-policy-shift forecasts. Global growth is projected to slow from 3.3 percent in 2024 to 3.2 percent in 2025 and 3.1 percent in 2026, with advanced economies growing around 1.5 percent and emerging market and developing economies just above 4 percent, it elaborated.
Inflation is projected to continue to decline globally, though with variation across countries: above target in the United States - with risks tilted to the upside - and subdued elsewhere, it pointed out.
Risks are tilted to the downside. Prolonged uncertainty, more protectionism, and labor supply shocks could reduce growth. Fiscal vulnerabilities, potential financial market corrections, and erosion of institutions could threaten stability.
Policymakers are urged to restore confidence through credible, transparent, and sustainable policies.
"Trade diplomacy should be paired with macroeconomic adjustment. Fiscal buffers should be rebuilt. Central bank independence should be preserved. Efforts on structural reforms should be redoubled. As Chapter 2 shows, past actions to improve policy frameworks have served countries well. As Chapter 3 demonstrates, industrial policy may have a role, but full consideration should be given to opportunity costs and trade-offs involved in its use," it said.
Global Economic Outlook Shows Modest Change Amid Policy Shifts and Complex Forces Dialing down uncertainty, reducing vulnerabilities, and investing in innovation can help deliver durable economic gains.
In April, the United States shook global trade norms by announcing sweeping tariffs. Given the complexity and fluidity of the moment, our April report offered a range of estimates for the growth downgrade, from modest to significant, depending on the ultimate severity of the trade shock.
Six months on, where are we? The good news is that the growth downgrade is at the modest end of the range. The reasons are clear. The United States negotiated trade deals with various countries and provided multiple exemptions. Most countries refrained from retaliation, keeping instead the trading system largely open. The private sector also proved agile, front-loading imports and speedily re-routing supply chains, it said.
"As a result, the increase in tariffs and its effect has been smaller than expected so far. We now project global growth at 3.2 percent this year and 3.1 percent next year, a cumulative downgrade of 0.2 percentage point since our forecast a year earlier," according to the report.
"Should we conclude that the shock triggered by the tariff surge had no effect on global growth? That would be both premature and incorrect."
Premature because the US statutory effective tariff rate remains high and trade tensions continue to flare up with no guarantee yet on lasting trade agreements. Past experience suggests that it may take a long time before the full picture emerges. So far, the incidence of the tariffs seems to fall squarely on US importers, with import prices (excluding tariffs) mostly unchanged, and limited retail price increases. But they may still pass costs onto US consumers, as some have started to do, and trade may reroute permanently, leading to global efficiency losses.
Incorrect, read the report, because other economic forces besides trade policy are simultaneously at play. In the United States, tighter immigration policies are shrinking the foreign-born labor supply - another negative supply shock on top of that from tariffs.
So far, this has been offset by cooling labor demand, keeping unemployment steady. Financial conditions remain loose, the dollar has softened in the first half of the year, and AI-driven investment is booming. These demand-side forces are supporting activity, while adding further to the price pressures from the negative supply shocks.
In tariff-hit economies, other dynamics are helping to cushion the blow. China is weathering higher tariffs with a weaker real exchange rate, redirected exports to Asia and Europe, and fiscal support.
Germany's fiscal expansion is lifting euro area growth. Emerging market and developing economies benefitted from easier global financial conditions thanks in part to the depreciation of the US dollar, and they continue to demonstrate strong resilience reflecting in part hard-earned gains from stronger policy frameworks.
Still, despite multiple offsetting drivers, the tariff shock is further dimming already lackluster growth prospects.
"We expect a slowdown in the second half of this year, with only a partial recovery in 2026, and, compared to last October's projections, inflation is expected to be persistently higher. Even in the United States, growth is weaker and inflation higher than we projected last year - hallmarks of a negative supply shock".
Overall, despite a steady first half, the outlook remains fragile, and risks remain tilted to the downside. The main risk is that tariffs may increase further from renewed and unresolved trade tensions, which, coupled with supply chain disruptions, could lower global output by 0.3 percent next year, it concluded. (end)
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