WASHINGTON (AN) — U.S. President-elect Donald Trump's push to lower taxes, impose tariffs and deregulate businesses hang over the International Monetary Fund's forecast for modest growth and less inflation.
IMF's forecast on Friday calls for 3.3% growth in the world economy for 2025 and 2026, a steady improvement from 3.2% in 2024 but down from the 3.7% a year average in the 2000s and 2010s.
Compounded by the COVID-19 pandemic, Russia’s invasion of Ukraine and the Israel-Hamas war, the world economy now faces a clouded outlook with Trump's second term beginning next week, according to the IMF.
Its economists say Trump’s plans, which also call for the deportation of millions of immigrants working illegally in the United States, could spark more inflation and prevent the Federal Reserve from cutting interest rates.
"An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains," says the 191-nation global lending organization's new World Economic Outlook.
Reigniting 'price pressures'
Global inflation is forecast to fall to 4.2% in 2025 and to 3.5% in 2026, down from 5.7% in 2024, says the IMF, which provides loans and grants to developing countries.
The U.S. economy is forecast to grow at 2.7% in 2025, slightly down from 2.8% in 2024. Trump will inherit from President Joe Biden's administration a strong economy and job market.
Trump's policies, however, "are likely to push inflation higher in the near term" and to "reignite U.S. price pressures" through more demand and less supply, IMF's chief economist, Pierre-Olivier Gourinchas, said.
Higher inflation also would prevent the Fed from cutting interest rates and might lead to rate hikes that strengthen the dollar, he said, while deregulation could prompt a "boom-bust cycle."
“There is a risk that excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the U.S. economy on a dangerous boom-bust path,” he said.
China’s economy, by contrast, is forecast to expand by 4.6% this year and next, but that is down from 4.8% in 2024 and it could suffer further from falling prices that put China "at risk of a debt-deflation stagnation trap,’’ Gourinchas said.
“The risk of renewed inflationary pressures could prompt central banks to raise policy rates and intensify monetary policy divergence,” the IMF reported. “Higher-for-even-longer interest rates could worsen fiscal, financial, and external risks.”
