Global Growth Finds Firmer Ground: IMF Lifts 2025 Forecast on Softer Trade Risks, Easing Financial Conditions

Image Source: Reuters

The IMF raised its 2025 global growth forecast to 3.2% from 3.0% in July, citing milder trade shocks and smoother financial conditions. Growth remains moderate at 3.1% in 2026. India leads major economies with an upward revision to 6.6% for FY2025-26, while inflation is projected to ease further in 2025–26.

The International Monetary Fund (IMF) has turned slightly more optimistic about the world economy, forecasting global real GDP growth of 3.2% in 2025, up from its July estimate of 3.0%. The agency attributes this improved outlook to less-severe trade shocks and easier financial conditions than earlier anticipated. For 2026, global output is expected to expand by 3.1%, broadly unchanged from July’s projection.

The latest update, part of the IMF’s October 2025 World Economic Outlook, suggests that despite lingering uncertainties surrounding U.S.-China trade tensions, the global economy remains on a firmer footing compared to mid-year forecasts. The IMF identified softening inflation, resilient consumer demand in key advanced economies, and better monetary conditions as forces cushioning activity across markets.

Key takeaways from the IMF forecast:

The IMF sees global growth at 3.2% in 2025, up from 3.0% in July, and **3.1% in 2026, maintaining steady momentum following 3.3% growth in 2024.
Global headline inflation is projected to decline to 4.2% in 2025 and further to 3.7% in 2026, down from 5.8% in 2024, reflecting easing commodity prices and tighter policy effects.
The U.S. economy is expected to grow 2.0% in 2025, slightly above the earlier 1.9% forecast, supported by lower-than-anticipated effective tariff rates, a fiscal boost from the tax bill, and looser financial conditions. Growth for 2026 is seen at 2.1%.
For China, growth estimates remain unchanged at 4.8% in 2025 and 4.2% in 2026 as the IMF sees headwinds from weak domestic demand and continued property sector fragility.
The Eurozone shows a minor uplift, with growth now expected at 1.2% in 2025 versus 1.0% in July, before moderating slightly to 1.1% in 2026.
Japan’s growth outlook brightened to 1.1% for 2025 (0.7% in July) on stronger wage trends and service recovery, tapering to 0.6% in 2026.
India remains one of the strongest performers. The IMF lifted India’s FY2025-26 GDP growth forecast to 6.6% (up 20 basis points from July) while trimming the FY2026-27 estimate slightly to 6.2%.

IMF Chief Economist Pierre-Olivier Gourinchas cautioned, however, that any material escalation in U.S.-China trade tensions could significantly dent global activity, though current developments have not yet prompted changes to the baseline forecasts.

Despite uneven recoveries across regions, the IMF’s latest projections signal that the global economy is transitioning into a more stable phase, helped by resilient labor markets and cautious policy normalization. The emphasis now shifts toward sustaining growth while ensuring that inflation continues to recede without reigniting financial volatility.

Sources: International Monetary Fund (World Economic Outlook, October 2025), Reuters, Bloomberg

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