📈IMF releases forecasts - May 2025 📈

The International Monetary Fund (IMF) has just published its World Economic Outlook, however it is evident that confident predictions are currently hard to come by. According to the Fund’s report, world GDP will grow by 2.8% in 2025 and 3.0% in 2026. However, these predictions are 0.5% lower than those published in January 2025, highlighting an increase in uncertainty due to global economic conditions.

This uncertainty can be primarily attributed to the new unpredictable US tariff policy, where the US implemented the largest tariff increase in modern history in April 2025. A week later, the US president announced a 90-day freeze on further tariff hikes in search of bilateral trade agreements, except for China, whose tariffs were raised sharply to 145%. For now, EU goods face a 10% tariff; lower than the initially announced 20%, but still much higher than the average tariff of 1.34% that was in force before 5 April. However, beyond the 90 days, future tariff levels are highly uncertain, and this unpredictability is a key source of concern reflected in the IMF’s latest forecasts.

The IMF’s world trade uncertainty index is now seven times higher than it was in October 2024 — even worse than during the pandemic. Unlike a high but stable tariff, today's unpredictable tariffs make it impossible for businesses and consumers to organise production chains or purchases. As a result, the response from businesses and consumers is inaction, harming economic activity.

Unlike past crises such as COVID-19 where investors flocked to US government securities for safety, bond prices are now falling, showing that investors no longer see US debt as a safe asset. This shift could trigger greater global financial instability.

Australia’s growth outlook has also taken a severe cut. Australia's economic growth projection for 2025 was downgraded to 1.6% from 2.1% in January. Global growth will be weaker in 2025 but not recessionary, and the IMF emphasised that reducing trade tensions could quickly improve growth prospects.

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Image source: Ben Symons/AAP Photos