Global growth will be stronger than previously expected this year after Donald Trump scaled back his most extreme tariff threats, the International Monetary Fund said as it upgraded the economic outlook for 2025.
The Washington-based organisation said a “de-escalation in tariffs” by the White House had spurred a recovery in global trade and a broader economic expansion, though US policies remain “highly uncertain” and risks to growth “firmly on the downside”.
The IMF chief economist, Pierre-Olivier Gourinchas, upgraded the forecast for global growth in 2025 to 3% from an April estimate of 2.8%. The outlook for 2026 was upgraded from 3% to 3.1%. The global economy grew by 3.3% in 2024.
Most regions benefited from the more benign economic outlook, including Britain, which is expected to grow by 1.2% this year – 0.1 percentage points higher than in the IMF’s April outlook – an upgrade it first announced in its annual review of the UK economy in May.
Trump threatened in April to impose severe import tariffs on the world’s biggest exporters of goods, including the UK, EU, China and South Korea, to combat what the US president sees as unfair competition.
Stock markets dived and the US dollar fell as investors, spooked by the potential hit to world trade, bought safe-haven assets.
IMF growth forecasts chart
The US later delayed or reduced tariffs in return for commitments to buy US-made goods, reversing market falls as investors concluded “Trump always chickens out” – a trade nicknamed Taco for short.
Trump ended months of speculation at the weekend over whether he would impose 30% tariffs on EU goods imports, saying he would limit the figure to 15% in exchange for concessions from the EU, including the purchase of US oil and gas worth almost £600bn. The French prime minister, François Bayrou, described the US-EU trade deal as a dark day for Europe.
Japan recently agreed to buy Boeing planes as part of a deal to limit tariffs on its exports to the US to 15%. Trump has also scaled back tariffs on Chinese goods, but only after Beijing retaliated by imposing punitive tariffs on rare earth metals needed by defence industry manufacturers.
Gourinchas said the US had “partly reversed course”, reducing its effective tariff rate from 24% to about 17%, but that tariffs were still “historically high, and global policy remains highly uncertain, with only a few countries having reached fully fleshed-out trade agreements”.
The White House has set a deadline of 1 August for several countries, including Vietnam and South Korea, to sign deals.
“Without comprehensive agreements, the ongoing trade uncertainty could increasingly weigh on investment and activity,” Gourinchas said.
He said the situation could also worsen should attacks on central banks intensify, undermining their authority. Trump has repeatedly called on Jerome Powell, the chair of the Federal Reserve, to cut interest rates, calling him a numbskull for failing to do so.
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Gourinchas said: “It is important to reaffirm and preserve the principle of central bank independence. The evidence is overwhelming that independent central banks, with a narrow mandate to pursue price and economic stability, are essential to anchoring inflation expectations.
“That central banks around the world achieved a successful ‘soft landing’ despite the recent surge in inflation owes a great deal to their independence and hard-earned credibility.”
In line with how markets are betting, the IMF expects the Bank of England to cut interest rates twice this year to 3.75%, but said rising inflationary pressures in the US and the UK could undermine market expectations. The City expects the Bank to make the first reduction to 4% on Thursday next week.
The chancellor, Rachel Reeves, said the IMF’s forecasts meant the UK remained the fastest-growing European economy in the G7 “despite the global economic challenges we are facing”.
Under pressure to overcome spending contraints to boost the economy, she said investment plans were on track in “city region transport, record funding for affordable homes, as well as backing major projects like Sizewell C”.
Trade data released on Tuesday showed that imports of goods into the US fell by $11.5bn (£8.6bn) in June, to $264.2bn, after a rise in imports earlier this year as companies tried to beat Trump’s tariffs.
This narrowed the US trade deficit to $86bn in June, down from $96.4bn in May.
