According to the International Monetary Fund’s (IMF) October 2025 World Economic Outlook, the global economy is adjusting to a period marked by slower growth, persistent inflation differentials, and intensifying protectionist measures.
The IMF has raised its global growth projection to 3.2 percent for 2025 and 3.1 percent for 2026, up from April’s forecast but still below pre-policy-shift expectations. Inflation is expected to decline to 4.2 percent in 2025 and 3.7 percent in 2026, while global trade growth remains subdued at 2.9 percent year on year, significantly below pre-2024 averages.
Tariffs, industrial policy and diverging fiscal paths
The report highlights the growing impact of tariffs and industrial policies on trade flows. The US has imposed average tariffs of 19 percent, triggering shifts in global supply chains and altering market sentiment. Meanwhile, China’s economic growth has slowed to around four percent, constrained by weak property markets and limited returns from industrial subsidies in key sectors such as electric vehicles and solar power.
The IMF warns that fiscal and monetary policies are increasingly diverging. Several advanced economies continue to pursue expansionary fiscal measures despite high real interest rates, heightening fiscal sustainability risks. It urges credible fiscal consolidation and cautious monetary normalization to preserve stability.
Financial markets and industrial policy trends
The IMF notes that global financial markets are being reshaped by surging investment in artificial intelligence and digital technologies, which could drive short-term productivity gains. However, it warns that asset price corrections remain a risk if expected returns fail to materialize.
A dedicated chapter of the report examines the rise of industrial policy worldwide, recognizing its potential to foster innovation but cautioning against prolonged or opaque fiscal support. The IMF calls for transparent, time-bound, and fiscally aligned measures to avoid market distortions.
Regional growth forecasts
For 2025, the IMF projects:
- United States: two percent
- Euro area: one percent
- China: four percent
- Emerging markets: 4.1 percent
- Low-income countries: 3.5 percent
Risks and policy recommendations
The IMF warns that risks remain tilted to the downside, citing prolonged protectionism, tighter financial conditions, weaker growth in major economies, and renewed commodity volatility as the main threats. Potential upside factors include faster resolution of trade disputes, stronger private investment, and productivity gains from new technologies.
To safeguard stability, the IMF recommends that governments maintain rules-based trade systems, rebuild fiscal buffers, and preserve central bank independence. It also urges international cooperation to counter economic fragmentation and sustain open, competitive markets.