The International Monetary Fund (IMF) has already sounded alarm bells on threats to global economic growth. It highlighted that worsening trade tensions, or a sharp deceleration in the new AI-fueled economic wave, would pose serious headwinds. The joint organization praised the development, noting that trade tensions have dissipated since October. They say that tariffs and uncertainty will continue to weigh on growth rates in the years to come.
In its most recent World Economic Outlook report, the IMF stuck with its prediction of just 3.3% growth globally for this year. It is a sign that the global economy is doing fine. Even accounting for these risks, the IMF went on to downplay them by calling growth “resilient” this year. It forecasts that global growth will decline to just 3.2% by 2027. This means monetary policy is working to bring about a steady deceleration of economic activity over time.
The IMF now predicts that global inflation rates will decrease from a projected 4.1% in 2025 to 3.8% in 2026. They expect it to drop even more — to 3.4% in 2027. This easing trend in inflation could be a boost for economies still contending with the effects of heightened inflation.
According to the IMF, the United Kingdom will record the highest growth rate of the advanced economies at 1.4% in 2025. That’s an upward revision from their previous forecast of 1.3%. This is a sign of an overall improving economic outlook for the UK, set against a much wider backdrop of global uncertainty.
The IMF’s Fiscal Monitor report highlights the critical need to safeguard central bank independence to prevent the dangers of fiscal dominance from occurring. It stated, “Preserving the independence of central banks, both legal and operational, remains critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and enabling them to achieve their mandates.”
Trade tensions are just one of the worrisome trends flagged by the IMF. In addition to economic uncertainty, the organization cautioned that an AI boom bust might make economic prospects even more gloomy. As new technologies have driven substantial growth in recent years, any reversal could impact productivity and innovation across various sectors.
The IMF’s glass is half-full. First, they forecast that in the coming two years, the impact of trade tensions on growth will fade with economies adjusting to new realities. The body has kept its initial growth projection for this year unchanged at 1.3%. It further forecasts only a modest rise to 1.5% in 2027.
“Paramount for macroeconomic stability and economic growth.” – IMF
As US Federal Reserve Chair Jerome Powell said, we’re in an “unprecedented” economic environment. He illustrated the challenges that policymakers face as they chart a course through these stormy seas.