The IMF is marginally more optimistic about the global economy’s prospects than it was three months ago, but it has cautioned that some of the resilience is being fuelled by “front-loaded” imports and exports in anticipation of higher US tariffs.
Moreover, the Washington-based institution has warned that tariffs could end up higher than expected and growth weaker.
The IMF kept its SA growth forecasts unchanged in its latest World Economic Outlook update, released on Tuesday, at 1% for this year, rising to 1.3% in 2026. Still, it raised its global growth forecast to 3% for this year, up from 2.8% in its April forecast, with the 2026 forecast at 3.1%, up from 3%.
Where April’s forecast was pitched as a “reference” forecast, because the uncertainty over tariffs was too high for hard predictions, the IMF’s latest forecast assumes that current tariff levels will prevail — even though it’s not yet clear what US President Donald Trump plans on Friday when his next round of tariff increases is due to take effect.
IMF chief economist Pierre-Olivier Gourinchas said on Tuesday that the US pause on higher tariffs for most of its trading partners and a de-escalation of trade tensions with China modestly reduced its effective tariff rate to about 17% from 24%.
The modest decline in trade tensions, however fragile, had contributed to the global economy’s resilience so far, he said. In addition, “concerns about future tariffs led to a strong surge in exports to the US in the first quarter of the year. “This front-loading helped support activity in Europe and Asia”, Gourinchas added.
Financial conditions had also improved as inflation continued to recede, while the dollar’s 8% depreciation since January had “amplified the impact of the tariff shock on other countries’ competitiveness”.
But Gourinchas warned that the global economy’s resilience was tenuous — and that tariffs could well reset at much higher levels once the “pause” expired on August 1 or if existing deals unravelled. If that were the case, global output could be 0.3 percentage points lower in 2026. And without comprehensive agreements, the ongoing trade uncertainty would increasingly weigh on investment and activity, he said.
“While the trade shock could turn out to be less severe than initially feared, it is still sizeable, and evidence is mounting that it is hurting the global economy,” Gourinchas said, adding that the IMF continued to project a persistent decline in global trade.
Though the IMF’s SA forecast is unchanged compared to the outlook it presented at its April meetings, it is significantly lower than the 1.5% for this year, rising to 1.6% in 2026, that was pencilled into its Article IV (four) annual report on SA in January.
In that report it said the government of national unity could be a turning point for SA if it could maintain cohesion and implement the reforms needed to address the huge, long-standing challenges eroding standards of living in SA.
At 1% this year and rising to 1.3% next year, the IMF’s growth projections are more pessimistic than the Reserve Bank’s most recent May forecasts of 1.2% for 2025, 1.5% for 2026 and 1.8% in 2027, which were lower than its March forecasts because of headwinds such as lower global growth.
The Bank is expected to update its forecasts at this week’s monetary policy committee meeting.
On inflation, the IMF expects tariffs will drive up US inflation but price growth could moderate elsewhere.
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