IMF Raises US Growth Forecast

The International Monetary Fund (IMF) has increased its growth projection for the US for this year. This revision helps balance downward adjustments in several major economies.

In the latest World Economic Outlook, the IMF expects global growth to stabilize at 3.3% in both 2025 and 2026. According to IMF Chief Economist Pierre-Olivier Gourinchas, this rate is “broadly aligned with potential growth that has substantially weakened” since the COVID-19 pandemic.

While the overall outlook remains consistent with previous reports from last October, Gourinchas noted that “divergences across countries are widening,” especially among advanced economies.

Key Projections

• The US economy is predicted to grow by 2.7% this year, a rise of 0.5 percentage points compared to the previous estimate. This growth is attributed to strong domestic demand and robust labor markets. It is expected to decrease to 2.1% by 2026.
• Conversely, the Eurozone forecast has been cut by 0.2 percentage points to 1.0% for 2025 due to challenges like weak manufacturing momentum, low consumer confidence, and high gas prices.
• Germany, the largest economy in Europe, is projected to grow by just 0.3% in 2025, down from 0.8% in the previous outlook. Similarly, France’s growth forecast has been reduced by 0.3 percentage points to 0.8%.
• In a positive turn, the IMF increased its forecast for China to 4.6% in 2025 and 4.5% in 2026, supported by recent stimulus measures from Beijing.

Inflation Trends

Inflation is anticipated to decrease from 4.2% this year to 3.5% next year, which Gourinchas believes will lead to a “return to central bank targets that will allow further normalization” of monetary policies worldwide.

Gourinchas commented on the broader economic disruptions over recent years, linking them to the pandemic and the war in Ukraine, which initiated the largest inflation surge in four decades.

However, he expressed concern over potential shifts in economic policy under the incoming administration of President-elect Donald Trump. While hard to quantify, these changes could create upward inflation pressures. Trump’s proposed deregulations and tax cuts may boost demand and raise prices immediately, while strict tariffs and deportation initiatives might reduce output and heighten price pressures. Although the effect of these inflation dynamics on near-term growth is ambiguous, higher inflation could hinder the Federal Reserve’s ability to lower interest rates, possibly necessitating rate hikes instead.