IMF sees steady global growth, but warns that Trump tariff, tax and deportation plans cloud outlook

The International Monetary Fund building, Monday, April 5, 2021, in Washington. (AP Photo/Andrew Harnik, File)

BY  NEWS BLEND 360

Updated 6:08 PM EST, January 17, 2025

WASHINGTON (NB360) — The International Monetary Fund (IMF) anticipates a modest acceleration in global economic growth and a continued decline in inflation this year. However, it cautions that the outlook is uncertain due to President-elect Donald Trump's proposed policies, which include significant U.S. tax cuts, tariffs on foreign imports, deregulation of businesses, and the deportation of millions of undocumented immigrants in the United States.

Based in Washington, the IMF projects global economic growth at 3.3% for this year and the next, up from 3.2% in 2024. This growth rate, while steady, is below the average annual growth of 3.7% experienced from 2000 to 2019. The subdued growth is attributed to the lingering impacts of major global disruptions such as the COVID-19 pandemic and Russia's invasion of Ukraine.

The IMF, an organization comprising 191 nations, aims to foster economic growth, ensure financial stability, and alleviate global poverty.

Global inflation, which had surged post-pandemic due to supply chain disruptions, is expected to decrease from 5.7% in 2024 to 4.2% this year and further to 3.5% in 2026.

In a blog post accompanying the IMF's latest World Economic Outlook report, the fund’s chief economist, Pierre-Olivier Gourinchas, noted that Trump's proposed policies “are likely to push inflation higher in the near term.”

Significant tax cuts could potentially overheat the U.S. economy and increase inflation. Similarly, imposing substantial tariffs on foreign goods could temporarily raise prices and adversely affect exporting countries. Additionally, mass deportations might lead to labor shortages in industries such as restaurants and construction, thereby increasing costs and hindering economic growth.

Gourinchas also mentioned that Trump's plans to reduce business regulations could “boost potential growth in the medium term if they eliminate red tape and encourage innovation.” However, he cautioned that “excessive deregulation could weaken financial safeguards and heighten financial vulnerabilities, potentially placing the U.S. economy on a precarious boom-bust trajectory.”

Trump inherits a robust U.S. economy. The IMF forecasts U.S. economic growth at 2.7% this year, a notable increase from the 2.2% predicted in October.

The American economy — the world's largest — is demonstrating resilience despite high interest rates implemented by the Federal Reserve to combat inflation. The U.S. benefits from a strong labor market, which bolsters consumer confidence and spending power, significant productivity gains, and an influx of immigrants that has alleviated labor shortages.

The unexpectedly strong performance of the U.S. economy contrasts sharply with the advanced economies in Europe. The IMF projects that the 20 eurozone countries will collectively grow by just 1% this year, up from 0.8% in 2024 but down from the 1.2% expected in October. According to Gourinchas, “headwinds include weak momentum, particularly in manufacturing, low consumer confidence, and the ongoing negative energy price shock” resulting from Russia's invasion of Ukraine.

The Chinese economy, the second-largest globally, is expected to slow down from 4.8% last year to 4.6% in 2025 and 4.5% in 2026. A downturn in the Chinese housing market has eroded consumer confidence. Gourinchas warns that without sufficient government intervention through lower interest rates, increased spending, or tax cuts, China “faces the risk of a debt-deflation stagnation trap,” where falling prices deter consumer spending and increase the burden of loan repayments.

The IMF's forecasts were released a day after its sister institution, the World Bank, projected global growth of 2.7% for 2025 and 2026, consistent with last year and 2023.

The World Bank, which provides financial assistance to low-income countries, cautioned that this growth rate is inadequate to reduce poverty in these regions. The IMF’s global growth projections are generally higher than those of the World Bank because they place greater emphasis on faster-growing developing nations.