The International Monetary Fund (IMF) is expecting steady global economic growth of around 3.3% in 2025 and 2026 – albeit with stark contrasts between leading economies and uncertainty created by the return of Donald Trump to the US Presidency.
In its World Economic Outlook report, the IMF is predicting above-average growth for India and China, and growth forecasts have been revised upwards slightly for the United States.
India and China are set to be the biggest drivers of global growth, with the economy on the subcontinent predicted to continue expanding at its current rate of 6.5% and that of the People’s Republic growing by up to 4.6%.
But growth in the European Union – and in Germany in particular – is expected to be slower amid high energy prices and potential US import tariffs.
The predicted global growth of 3.3% is up slightly from 3.2% in 2024, but still far from the average 3.7% annual growth between 2000 and 2019, as major global economic shocks such as the COVID-19 pandemic and Russia’s invasion of Ukraine continue to have lingering effects.
USA: IMF warns of dangers of ‘boom-bust’ economy
With President-elect Trump expected to take a business-friendly, neoliberal approach to the US economy, characterized by lower corporate taxes and less state regulation, the IMF is predicting the world’s largest economy to grow by 2.7% – which is 0.5% more than previously expected.
Writing in a blog post accompanying the release of the report, the IMF’s chief economist, Pierre-Olivier Gourinchas, said that Trump’s plans to slash regulations on business could “boost potential growth in the medium term if they remove red tape and stimulate innovation.”
But he warned that “excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the US economy on a dangerous boom-bust path.”
Indeed, with Trump also threatening trade wars, the IMF has revised its predictions for international trade volume downwards, with export economies such as Germany potentially one of the biggest victims.
Germany and Eurozone battling high energy prices
After two years of recession in 2023 and 2024, the German economy is expected to return to marginal 0.3% growth, albeit half a percentage point less than previous predictions.
High energy prices continue to put the brakes on German industry and, with the country currently in the middle of an election campaign, a new government likely won’t be able to begin tackling the economy until March.
Elsewhere in Europe, the Spanish, French and Italian economies are expected to outperform Germany in terms of growth, but gas prices five times higher than those in the United States are expected to limit Eurozone growth to 1.0% in 2025 and then 1.4% in 2026.
Gourinchas said the “headwinds” facing the Eurozone economy included “weak momentum, especially in manufacturing, low consumer confidence, and the persistence of a negative energy price shock” caused by Russia’s ongoing war in Ukraine.
As for Russia, the IMF puts estimated 3.8% growth for 2024 down to huge state investment in arms manufacturing to finance the so-called “special military occupation.”
But the superficial nature of that growth could be exposed in 2025 and 2026 as international sanctions continue to bite, with the IMF predicting a contraction first to 1.4% and then to 1.2%.
mf/rc (Reuters, dpa)