The International Monetary Fund is predicting lower global headline inflation this year and next, but warns that the policy plans of the incoming Donald Trump administration herald greatly increased uncertainty.
“If the adverse effects of tariffs and reduction in the labour force dominate, global activity as well as activity in the US might be affected negatively in the medium term,” the IMF said in its January World Economic Update released on Friday.
“Uncertainties are high: the effects of each factor would unfold differently across countries.”
Trump, whose second term begins tomorrow, has vowed to hike tariffs as part of his “America first” policies and to act against immigration, a key source of labour.
IMF economic counsellor and director of the research department Pierre-Olivier Gourinchas said global growth will remain steady at 3.3% this year and in 2026 with global inflation set to decline from about 5.8% in 2024 to 4.2% in 2025 and 3.5% next year.
“This means that the very large global disruptions that started with the pandemic and the war in Ukraine, and triggered the largest inflation surge in 40 years, are behind us. This is the end of a cycle and the beginning of a new one.”
Uncertainties are high: the effects of each factor would unfold differently across countries
— IMF January World Economic Update
According to the update, South Africa’s economy is projected to grow just 1.5% in 2025 compared with 4.2% for sub-Saharan Africa. For next year the forecasts are 1.6% and 4.2% respectively.
“Global headline inflation is expected to [converge] back to target earlier in advanced economies than in emerging market and developing economies. Medium-term risks to the baseline are tilted to the downside, while the near-term outlook is characterised by divergent risks,” the IMF said.
Upside risks could lift already-robust growth in the US in the short term, whereas risks in other countries are on the downside amid elevated policy uncertainty, the outlook said.
Gourinchas warned in a blog linked to the report that while the global outlook was broadly unchanged from October divergences were widening. He said some of the divergence was structural as China is expected to post 4.6% growth in 2025.
“Among advanced economies, the US is stronger than previously projected, expected to grow at 2.7% this year. By contrast, growth in the euro area is revised downward and will increase only modestly to 1% in 2025, reflecting low consumer confidence and the persistence of high energy prices, especially relative to the US.”
President-elect Trump’s second term could herald headwinds for global growth and fuel inflationary pressure if he delivered on his tariff promises, Gourinchas said.
He said the supply risk of higher tariffs and curbs on migration could squeeze production in the US, and higher inflation in the US would prevent the Federal Reserve from cutting rates as early as previously expected.
Deniz Igan, head of the economic studies division at the fund, said the South African Reserve Bank’s inflation targeting approach was resulting in lower inflation projections, in line with declining oil prices globally. She said growth would be negligible in South Africa.
“The 2024 growth was actually slower than we had projected earlier, and the reason for that is the drought-related decline in agricultural activity and we expect that there is going to be ongoing reforms and an uptick in activity going forward.”
She said growth in sub-Saharan Africa remained subdued and uneven due to natural disasters, ongoing conflicts and limited access to finance.
“In 2026, we expect growth [for the region] to remain stable and this is a slight downgrade from our October report. Inflation is going to continue to decline, although at a slightly faster pace in 2025, and is going to stay higher than we had predicted in October for 2026.”
The Reserve Bank is due to hold its first monetary policy committee meeting of the year on January 30. On Wednesday, StatsSA is scheduled to release its CPI data for last month.
Reserve Bank governor Lesetja Kganyago said in November that a medium-term improvement in growth was expected as reforms gained traction, with 2% growth expected by 2027.
The IMF outlook update predicted that the market-implied six-month-forward policy rate for the US would hover at 5.4% this month, while the emerging market average — drawn from a group of middle-income economies including South Africa — would climb but remain below 5.3%.
Despite the prolonged period without load-shedding, the World Economic Forum’s 2025 Global Risks Report published on Wednesday flagged “energy supply shortage” as the No 1 risk to the South African economy, followed by recession and stagnation.
The risk report said the IMF noted rising risks to the global economy posed by conflict escalation, tariffs and trade policy uncertainty, lower migration, and the tightening of global financial conditions.
“The latter could pose a challenge to financial stability given that valuations are elevated in several asset classes and the amount of leverage used by financial institutions is significant. The rapid growth in the private credit market is one area to monitor.”
The WEF report added that many countries with youthful demographics are in sub-Saharan Africa, which has by far the highest fertility rate globally. “These demographics will help sustain rising working-age populations for several decades.”
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