IMF Cautions Global Economy: Escalating Trade Tensions Could Wipe Out 0.3% of Output Next Year

The International Monetary Fund (IMF) has issued a strong warning that while the recent slowdown in global growth has been less severe than initially feared, the world economy remains vulnerable to suffering significant damage should trade tensions be allowed to escalate.

Dependable NG reports that in its latest World Economic Outlook, released at the beginning of the ongoing World Bank and IMF Annual Meetings in Washington, D.C., the organisation revised its 2025 global growth projection slightly upwards to 3.2 per cent—a 0.2 percentage point increase from its July projection.

Pierre-Olivier Gourinchas, IMF chief economist, acknowledged the reasons for the mitigated impact so far, stating: “The tariff shock is smaller than initially feared, partly because of trade deals and exemptions. Most countries also refrained from retaliation.”

However, Gourinchas cautioned that another round of trade anxieties could potentially cut off approximately 0.3 per cent from global output next year, noting that the effects of existing United States’ tariffs are already evident. He added that other risks include the possibility of a sudden repricing of tech stocks and issues surrounding the sustainability of China’s export-led growth model.

The official suggested that clearer trade agreements and lower tariffs could significantly strengthen output, alongside domestic policies aimed at empowering entrepreneurs to innovate and thrive.

Furthermore, Tobias Adrian, Director of the IMF’s Monetary and Capital Markets Department, observed that despite policy uncertainty, global financial markets have largely recovered since the April selloff. Speaking at the briefing on the Global Financial Stability Report, he stated that while financial conditions appear “easy,” the “macro-financial risks remain somewhat elevated.”