IMF raises forecast for 2025 US economic growth
2025.01.17 11:10
Investing.com – The International Monetary Fund has hiked its growth forecast for the US this year, helping offset downward revisions in several other major economies.
In its latest World Economic Outlook, the IMF projected that global growth will remain steady at 3.3% in both 2025 and 2026.
The rate is “broadly aligned with potential growth that has substantially weakened” since before the COVID-19 pandemic, said IMF Chief Economist Pierre-Olivier Gourinchas in a blog post on Friday.
He noted that while the outlook is broadly unchanged from the IMF’s previous report in October, “divergences across countries are widening”, particularly among advanced economies.
The US economy is now expected to expand by 2.7% this year, a 0.5 percentage point increase compared to the IMF’s previous projection in October, thanks to continued strength in domestic demand and solid labor markets. Growth is then seen edging down to 2.1% in 2026.
However, it slashed its forecast for the Eurozone by 0.2 percentage points to 1.0% for 2025. Gourinchas flagged a range of headwinds facing the currency area, including weak momentum in manufacturing, low consumer confidence, and persistently elevated gas prices.
Germany, Europe’s largest economy, was tipped to grow by just 0.3% in 2025, down from 0.8% seen in October, while France’s outlook was reduced by 0.3 percentage points to 0.8%.
Elsewhere, the IMF ticked up its forecast for China, the world’s second-largest economy, to 4.6% in 2025 and 4.5% in 2026, thanks to a raft of recent stimulus measures rolled out by Beijing.
Inflation, meanwhile, is seen slowing from 4.2% in the current year to 3.5% next year, which Gourinchas said would mark a “return to central bank targets that will allow further normalization” of monetary policy around the world.
“This will help draw to a close the global disruptions of recent years, including the pandemic and Russia’s invasion of Ukraine, which precipitated the largest inflation surge in four decades,” Gourinchas added.
But he said potential policy shifts under the incoming administration of US President-elect Donald Trump, while “hard to quantify precisely”, are “likely” to place upward pressure on inflation in the near term.
In particular, Trump’s plans for looser reglations and tax cuts would stimulate demand and drive up prices “as spending and investment increase immediately”, Gourinchas said. The President-elect’s proposal to impose sweeping import tariffs and carry out mass deportations would also “play out like negative supply shocks, reducing output and adding to price pressures”, he argued.
Although Gourinchas said the impact of reignited inflation on near-term economic output would be “ambiguous”, he added that higher price gains would prevent the Federal Reserve from cutting interest rates and may even require borrowing cost hikes.
