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 spurred a recovery in global trade and a broader economic expansion, though US policies remain “highly uncertain” and risks to growth remain “firmly on the downside”.
The IMF chief economist, Pierre-Olivier Gourinchas, upgraded a forecast for global growth in 2025 to 3% from an estimate in April 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 the UK, which is expected to grow by 1.2% this year – 0.1 percentage points higher than in the IMF’s April outlook.
The chancellor, Rachel Reeves, said: “The IMF’s forecasts show that the UK remains the fastest-growing European economy in the G7 despite the global economic challenges we are facing.
“However, I am determined to unlock Britain’s full potential, which is why we are investing billions of pounds through our plan for change – in jobs through better city region transport, record funding for affordable homes, as well as backing major projects like Sizewell C.”
In April, Trump threatened 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 believed was unfair competition.
Stock markets dived and the US dollar fell as investors, spooked by the potential hit to world trade, bought safe-haven assets.
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” – or Taco for short.
At the weekend Trump agreed to end months of speculation over whether he would impose 30% tariffs on EU goods imports, saying he would limit the rise to 15% in exchange for concessions from the EU, including the purchase of almost £600bn worth of US oil and gas. The French prime minister 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%. And 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 the US effective tariff rate from 24% to about 17%.
But he added: “Despite these welcome developments, tariffs remain historically high, and global policy remains highly uncertain, with only a few countries having reached fully fleshed-out trade agreements.”
after newsletter promotion
The White House has set a deadline of 1 August for several countries, including Vietnam and South Korea, to sign deals with the US.
“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 US Federal Reserve, to cut interest rates, calling him a “numbskull” for failing to do so.
Gourinchas added: “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.”
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.
