The global economy has shown \u201cunexpected resilience\u201d in the face of Donald Trump\u2019s tariffs, but the full impact is yet to be felt, and outlook for growth remains \u201cdim\u201d, the International Monetary Fund (IMF) has warned.<\/p>\n
As policymakers gather in Washington for its annual meetings, the IMF has upgraded its forecast for global GDP growth this year to 3.2%, from 3% at its last update in July<\/a>. Next year\u2019s global forecast is unchanged, at 3.1%.<\/p>\n The forecast for economic growth in the UK has also been modestly increased, from 1.2% to 1.3% this year \u2013 though slightly downgraded next year, also to 1.3%.<\/p>\n \u201cTo date, more protectionist trade measures have had a limited impact on economic activity and prices,\u201d the IMF said in its latest World Economic Outlook (WEO).<\/p>\n The Fund cited the slow-burn economic impact of Brexit as evidence that the uncertainty unleashed by dramatic policy shifts such as Trump\u2019s tariffs may take time to feed through into investment decisions.<\/p>\n \u201cBusiness investment continued to grow in the period immediately following the UK\u2019s withdrawal from the EU and started to fall steadily only beginning in 2018,\u201d it said.<\/p>\n IMF growth forecasts chart<\/a><\/p>\n It said the tariffs imposed were less extreme than initially feared after Trump\u2019s \u201cliberation day\u201d announcements in April<\/a> and their impact masked by households and companies bringing forward consumption to beat their introduction.<\/p>\n However, the report pointed to a series of concerns about the global outlook, including the risk to US growth from Washington\u2019s immigration crackdown; \u201cstretched valuations\u201d in stock markets; and the fact the full effects of the tariffs are only now beginning to show.<\/p>\n \u201cLooking past apparent resilience resulting from trade-related distortions in some of the incoming data and whipsawing growth forecasts from wild swings in trade policies, the outlook for the global economy continues to point to dim prospects, both in the short and the long term,\u201d it said.And it highlights more restrictive immigration policies in a number of countries as cause for concern about future economic growth.<\/p>\n In particular, with Trump bearing down on immigration to the US, the IMF says US GDP could be reduced by 0.3%-0.7% as a result, and inflation in the worst-affected industries could surge.<\/p>\n \u201cCertain sectors of the economy where immigrants form a large portion of the labour force, such as construction, hospitality, personal services, and farm work, could experience stronger inflationary pressures than others,\u201d it said.<\/p>\n Echoing a speech by the IMF managing director, Kristalina Georgieva, last week<\/a>, the WEO report also warned of the risks of a \u201ccorrection,\u201d in share prices \u2013 and a downturn investment \u2013 if markets reassess the likely gains from generative AI.<\/p>\n Highlighting the fact that investors have been surprisingly unmoved by recent policy turmoil, the IMF pointed to \u201cstretched valuations\u201d.<\/p>\n It added that if share prices drop, \u201cthe decline in aggregate investment could be rather sharp, given that investment in datacentres and AI was a significant contributor to investment growth recently\u201d.<\/p>\n skip past newsletter promotion<\/a><\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com<\/a> to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy<\/a>. We use Google reCaptcha to protect our website and the Google Privacy Policy<\/a> and Terms of Service<\/a> apply.<\/p>\n after newsletter promotion<\/p>\n Responding to the improved forecast for UK growth this year, the chancellor, Rachel Reeves, said: \u201cThis is the second consecutive upgrade to this year\u2019s growth forecast from the IMF. It\u2019s no surprise, Britain led the G7 in growth in the first half of this year, and average disposable income is up \u00a3800 since the election.\u201d<\/p>\n Over the year as a whole, the IMF expects the UK to be the second fastest-growing economy in the G7, behind the US, with GDP growth of 2%.<\/p>\n However, it said inflation is likely to rise to the highest in the G7 in 2025 and 2026. It expects UK inflation to average 3.4% in 2025, increasing from its previous prediction of 3.2%.<\/p>\n UK inflation is expected to slow slightly to 2.5% next year, above the IMF\u2019s 2.3% prediction made earlier this year.<\/p>\n Presenting the report, the IMF chief economist, Pierre-Olivier Gourinchas, stressed that inflation in the UK had been boosted by temporary factors, but raised concern about the outlook. \u201cWe expect that this will moderate going forward, but there are risks \u2013 we see some upside risks,\u201d he said.<\/p>\n He pointed to strong wage growth, as well as higher expectations of future inflation. \u201cHouseholds and firms in the UK are becoming maybe a bit less certain that inflation is coming down quickly,\u201d he said.<\/p>\n Asked about rising yields on UK government bonds, which have pushed up the cost of borrowing for the Treasury, Gourinchas suggested global factors were largely to blame. \u201cWe are not seeing major risks there,\u201d he said.<\/p>\n Gourinchas said these upside inflation risks meant the Bank of England should be \u201cvery cautious in its easing trajectory\u201d \u2013 meaning policymakers should not rush to cut interest rates.<\/p>\n","protected":false},"excerpt":{"rendered":"The global economy has shown \u201cunexpected resilience\u201d in the face of Donald Trump\u2019s tariffs, but the full impact…\n","protected":false},"author":2,"featured_media":78775,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":["post-78774","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-new-zealand","tag-newzealand","tag-nz"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/78774","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=78774"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/78774\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/78775"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=78774"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=78774"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=78774"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}