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IMF warns of trade tension risk to global growth
IMF warns of trade tension risk to global growth
Trade tensions and a reversal in the artificial intelligence (AI) boom are among the main risks to global economic growth, the International Monetary Fund (IMF) has warned.
Its comments came in its latest world economic outlook, where it described the global economy as "steady", with growth expected to remain "resilient" this year.
The IMF's forecast was produced ahead of Donald Trump's threat at the weekend to impose tariffs on eight European countries opposed to his proposed takeover of Greenland.
The fund also said the independence of central banks was "paramount" for global economic stability and growth.
The economic watchdog said global growth was projected to reach 3.3% this year - an increase from its previous forecast of 3.1% - before slowing slightly to 3.2% in 2027.
Speaking to the BBC, IMF chief economist Pierre Olivier Gourinchas said: "We have a picture of a global economy that is growing at - it's not outsized growth rates but it's quite resilient, quite robust.
In a sense the global economy has been shaking off the trade disruptions of 2025, and it's coming out ahead of what we were expecting.
He said while the effects of Trumps' tariffs has been "definitely to slow down global activity", he added that there "have been other things that have been more than offsetting".
The IMF's report says the global economy has been helped by "tailwinds from surging investment related to technology, including artificial intelligence (AI)".
However, it said risks to the global outlook "remain tilted to the downside", warning that if expectations about AI growth turn out to be overly optimistic an abrupt market correction could be triggered.
Even a relatively mild market correction could have an impact, Gourinchas said, given how much share price gains have contributed to wealth gains in recent years. Other risks are emerging as firms increasingly take on debt to make AI investments.
"It doesn't take as much of a market reaction to have an impact on people's wealth relative to their income so that they start cutting consumption, [businesses start] changing their investment plans etc, so there could be some vulnerability there," he said.
As well as an end to the AI boom, another possible risk highlighted by the IMF was that "trade tensions could flare up, prolonging uncertainty and weighing more heavily on activity".
Domestic political tensions or geopolitical tensions could erupt, introducing new layers of uncertainty and disrupting the global economy through their impact on financial markets, supply chains, and commodity prices.
The IMF estimates the UK grew by 1.4% in 2025, slightly up from its previous projection of 1.3%. Its forecast for this year remains unchanged at 1.3%, which would make it the third fastest growing economy in the G7 behind the US and Canada. It predicts 1.5% growth in 2027.
Chancellor Rachel Reeves said the IMF had upgraded the UK's growth for the third time since April 2025, and the country was "on course to be the fastest growing European G7 economy this year and next".
But shadow chancellor Sir Mel Stride said: "A 0.1% uptick is not a triumph and the fact Rachel Reeves is celebrating it shows how desperate she has become."
The IMF expects global inflation to fall from an estimated 4.1% in 2025 to 3.8% in 2026 and further to 3.4% the following year.
In the UK, Gourinchas said price changes in regulated industries, such as transport and energy, had kept inflation elevated last year but "that's going to fade away".
The IMF expects UK inflation to return to the 2% target by the end of the year, as a weakening labour market continues to keep wage growth down.
The IMF warned that central bank independence was "paramount for macroeconomic stability and economic growth".
"Preserving the independence of central banks, both legal and operational, remains critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and enabling them to achieve their mandates," it said.
It comes a week after US Federal Reserve chair Jerome Powell said he was the subject of an "unprecedented" US justice department criminal investigation over his testimony about the bank's building renovations.
He said he believed this was due to Donald Trump's anger over the Fed not cutting interest rates, but Trump said he did not know about the investigation.
Powell's comments prompted central bank heads across the world to declare "full solidarity" with the US Fed chief, while three former heads of the bank strongly criticised the investigation.
Gourinchas said preserving central bank independence would be key to economic success in the years ahead.
Without it, he warned, "the economic environment deteriorates pretty rapidly".
Gourinchas said challenges to central bank independence had emerged elsewhere, particularly in countries with big borrowing needs, as leaders are enticed by the idea that lower interest rates would make it less expensive to fund government spending.
But he warned those dynamics tend to lead to inflation and higher borrowing costs over time.
"The evidence is very clear. It's self defeating," he said.
Source: BBC
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