The International Monetary Fund (IMF) has nudged up its global growth forecast but warned of a potential slowdown in FY26, citing heightened trade tensions, fiscal vulnerabilities, and geopolitical uncertainty.
In its latest World Economic Outlook update, the IMF now projects global GDP to grow at 3.0% in 2025 and 3.1% in 2026, both slightly above April estimates but still below the 3.3% growth recorded in 2024 and the pre-pandemic average of 3.7%.
The uptick in projections reflects stronger-than-expected first-half trade activity, improved financial conditions due to a weaker US dollar, and the temporary suspension of new tariffs.
But the IMF cautions that this front-loaded momentum could fade by 2026. Trade uncertainty remains elevated, especially as the US pause on tariff hikes initially extended to August 10 is nearing expiration. Letters sent by the US administration to trade partners threaten even higher tariffs, reviving fears of a protectionist spiral.
For emerging and developing economies, growth remains relatively resilient, forecast at 4.1% in 2025 and 4.0% in 2026. India is projected to grow at 6.4% in both years, supported by a more benign external environment, while China’s outlook has been revised up to 4.8% in 2025 and 4.2% in 2026 due to easing tariffs and strong first-half performance.
Still, the IMF warns that “elevated uncertainty” and fragmented trade negotiations could distort supply chains and slow investment. A scenario where tariff rates return to April levels or rise further could shave 0.2 percentage points off 2025 growth, the report estimates.
Persistent fiscal deficits, particularly in the US, and renewed geopolitical shocks in the Middle East or Ukraine could also tighten global financial conditions and reignite inflationary pressures.
Amid these global headwinds, India’s domestic fundamentals appear steady, according to the Finance Ministry’s Monthly Economic Review for June 2025, released Monday. It notes that the first quarter of FY26 shows resilient supply and demand, with inflation within target and monsoons progressing well.
