Rising Trade Frictions Threaten to Undermine IMF’s Optimistic Growth Forecast

Washington — The International Monetary Fund (IMF) has revised upward its global growth projections, but remains cautious about the mounting risks posed by intensifying trade tensions—especially between the U.S. and China. While current data show resilience, the IMF warns that further escalation could sharply erode growth momentum.

Upgraded Forecast Amid Lingering Risks

In its October World Economic Outlook, the IMF now forecasts global growth of **3.2 % in 2025**, up from 3.0 % projected in July. Growth for 2026 is projected at 3.1 %.

The upgrade reflects more benign-than-expected tariff effects, resilient private sector responses, active fiscal measures in Europe and China, and rapid supply-chain adjustments. However, the IMF underscores that the full cost of trade policy shocks has yet to materialize.

Trade Policy as a Downside Risk

The IMF cautions that further escalation of trade conflicts could substantially drag down global output. In one downside scenario, additional tariffs could subtract up to **0.3 percentage points** from global growth in 2026, and as much as **0.6 percentage points** over subsequent years.

Tariff uncertainty has already contributed to hesitation in investment decisions, especially in trade-sensitive sectors. The IMF notes that while many firms front-loaded imports or rerouted supply chains to dampen shock effects, those maneuvers are finite buffers.

U.S. importers are currently absorbing many tariff costs, but consumer pass-through remains possible. Additionally, the disruption of trade networks may lead to lasting losses in global efficiency.

Offsetting Strengths and Structural Headwinds

Though trade stress looms, growth is being buoyed by several countervailing factors. In the U.S., surging investment in artificial intelligence, relatively loose financial conditions, and a softer dollar support demand. In emerging markets, depreciation of the U.S. dollar and prudent policy frameworks have provided breathing room.

Nonetheless, headwinds persist: strained public finances, inflation pressures, tighter immigration policies in advanced economies, and the possibility of policy missteps in major economies.

Policy Imperatives and Outlook

The IMF recommends urgent steps to rein in uncertainty: clear, rules-based trade policies; coordinated multilateral dialogues; and measured domestic policy reform to strengthen resilience.

Should major economies reverse course on tariffs and stabilize trade regimes, the IMF sees potential upside of ~0.3–0.4 percentage points in global output gains.

But the window for action is narrowing. Without a course correction, further trade clashes may force the global economy into a weaker growth path, undermining recovery prospects and increasing volatility in financial markets.