Much of the world has managed to successfully lower inflation and engineer an economic soft landing, avoiding recession, but faces rising geopolitical risks and weaker long-term growth prospects, according to the International Monetary Fund.
Global headline inflation will fall to 3.5% on an annual basis by the end of 2025, from an average 5.8% in 2024, the agency said in its World Economic Outlook released on Tuesday. Inflation peaked at a year-over-year rate of 9.4% in the third quarter of 2022. The yearend 2025 rate is slightly below the average annual rise in prices in the two decades before the Covid-19 pandemic.
“The global battle against inflation is almost won,” the IMF report trumpeted, even as it called for “a policy triple pivot” to address interest rates, government spending and reforms and investment to boost productivity.
“Despite the good news on inflation, downside risks are increasing and now dominate the outlook,” said IMF chief economist Pierre-Olivier Gourinchas. Now that inflation is headed in the right direction, global policymarkers face a new challenge stemming from the rate of growth in the world economy, the IMF warned.
The fund kept its global growth estimate at 3.2% for 2024 and 2025 — which it called “stable yet underwhelming.” The United States is now forecast to see faster growth, and strong expansions are also likely in emerging Asian economies as a result of robust artificial intelligence-related investments. But the IMF lowered its outlook for other advanced economies — notably the largest European nations — as well as several emerging markets, blaming intensifying global conflicts and ensuing risk to commodity prices.
Vigilance needed in final stretch of disinflation
The Washington-based IMF, with 190 member countries, said in its overview that responsive monetary policy was key to bringing down inflation while labor market conditions normalized and supply shocks unwound, all of which helped avoid a global recession.
Central banks will need to remain vigilant in fully bringing down inflation, the report warned. It added that services inflation still remains nearly double pre-pandemic levels as wages in certain countries continue catching up to an increase in the cost of living, leading several emerging market economies such as Brazil and Mexico to see an uptick in inflationary pressures.
“While inflation expectations have remained well anchored this time around, it may be harder next time, as workers and firms will be more vigilant in protecting their standards of living and profits going forward,” the report stated.
Lower-income countries, where food and energy costs account for a greater share of household expenses, are also more sensitive to spikes in commodity prices that could lead to higher inflation. Poorer countries are already under greater stress from sovereign debt repayments, which could further limit funding for public programs.
Market volatility among key downside risks
Heightened financial volatility is another threat to global growth, the IMF report said. Sudden market sell-offs, such as occurred in early August, were cited by the IMF as a key risk that clouds the economic outlook. Although markets have steadied since the brief August’s slump, fueled by an unwinding of the yen carry trade and weaker-than-expected U.S. labor market data, worries remain, according to the fund.
“The return of financial market volatility over the summer has stirred old fears about hidden vulnerabilities. This has heightened anxiety over the appropriate monetary policy stance,” the report said.
Further challenges to global financial markets could come in the final stretch of the fight against inflation. Market turbulence and contagion is a key risk if underlying inflation remains stubborn — a key risk to low-income countries that are already under stress from high sovereign debt and currency market volatility.
Other downside risks include geopolitical concerns, notably the Middle East conflict and potential spikes in commodity prices. A potentially deeper Chinese property market contraction, interest rates remaining too high for too long and rising protectionism in global trade are other threats to prosperity, the IMF said.
The outlook is murkier longer term. The IMF forecasts global growth will rise 3.1% annually at the end of the 2020s, the lowest level in decades. While China’s weaker outlook has weighed on medium-term projections, but so does a deteriorating outlook in Latin America and Europe. Structural headwinds such as low productivity and aging populations are also limiting growth prospects.
“Projected slowdowns in the largest emerging market and developing economies imply a longer path to close the income gaps between poor and rich countries. Having growth stuck in low gear could also further exacerbate income inequality within economies,” the IMF warned.
In an aerial view, a container ship is seen docked at the Port of Oakland on April 18, 2025 in Oakland, California.
Justin Sullivan | Getty Images
Businesses dealing with the early stages of President Donald Trump’s tariffs are looking for ways to pass increasing costs onto consumers, according to a Federal Reserve report Wednesday.
As Trump ordered against-the-board levies on U.S. imports and higher duties on Chinese products, the Fed’s “Beige Book” indicated how they plan to proceed. Companies reported getting notices from suppliers about rising costs, and they looked to find ways not to absorb the increases while noting uncertainty over the ability to pass them along to customers.
“Most Districts noted that firms expected elevated input cost growth resulting from tariffs,” the report said. “Many firms have already received notices from suppliers that costs would be increasing.”
Broadly speaking, the report — which comes out about every seven weeks — characterized economic growth as “little changed” from the March 5 report, though it noted that “uncertainty around international trade policy was pervasive across” the Fed’s 12 districts.
Prices generally rose during the period, which included Trump’s April 2 “liberation day” announcement of the blanket tariffs. Employment was “little changed” amid falling headcounts in government jobs.
“Firms reported adding tariff surcharges or shortening pricing horizons to account for uncertain trade policy,” the report stated. “Most businesses expected to pass through additional costs to customers. However, there were reports about margin compression amid increased costs, as demand remained tepid in some sectors, especially for consumer-facing firms.”
In the New York area, firms reported rising prices particularly in food and insurance along with construction materials. Manufacturers and distributors said they already are adding surcharges due to shipments.
There also were signs of problems in the trade dispute with Canada: Tourists are booking fewer hotel rooms in New York City and at least one tech firm reported losing business contacts in Canada.
“The outlook for service sector firms worsened noticeably, with contacts anticipating a sharp decline in activity in the coming months. Service sector firms reported a major pullback in planned investment,” the report said.
Elsewhere in the report, service organizations dependent on government support noted difficulties since the White House began culling through agencies that get federal aid. The report specifically cited food banks in New York as seeing cuts in programs and personnel.
“Contacts at non-profits and other community-based organizations expressed significant concern about the future of federal funding and services support, creating challenges in staffing, strategy, and planning,” the report said.
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Consumer spending is rising at a faster clip this month as everyday Americans rush to make purchases before President Donald Trump’s full tariff plan takes effect, data released Wednesday from JPMorgan shows.
Spending through the first 15 days in April climbed about 3.8% from the same period a year ago, JPMorgan found. Spending in March increased about 2.7% from the comparable month a year ago.
The pickup in spending shouldn’t be construed as heralding faster economic growth, however. “April data may reflect a pullforward of discretionary spending on big-ticket items if consumers tried to lock in lower prices before tariffs went into effect,” JPMorgan analysts led by Richard Shane wrote to clients in a note on Wednesday.
Much of the April gain came from discretionary spending, which rose by 4.3% in the first 15 days year-over-year, versus 2.9% growth in non-discretionary spending.
Psychological impact
JPMorgan’s data offers early hard evidence of how Trump’s plan for steep tariffs on imports has affected the psyche of American consumers. While Trump placed many of his planned levies on a 90-day pause soon after announcing them, anecdotal reports show Main Street consumers bracing for what many view as a seismic shift in global trade.
To be sure, JPMorgan noted that some of the growth in spending may have also been tied to the Easter holiday, which fell almost three weeks later in 2025 than in 2024. The analysts also pointed to sliding gasoline prices as a possible driver of increased discretionary spending.
Still, the potential for some binge buying before the full effect of Trump’s tariff policy is felt has altered the short-term economic outlook for small business owners and policymakers alike.
At first, “activity might look artificially high … and then by the summer, might fall off — because people have bought it all,” Austan Goolsbee, president of the Chicago Federal Reserve, recently told CBS in reference to the acceleration of spending by consumers trying to get ahead of tariffs. A temporary bump in spending may lead to a corresponding drop-off in spending during the summer, he said.
Inventory stockpile
Goolsbee also cited evidence of businesses stockpiling inventory to last two to three months and said so-called preemptive purchasing appeared more common among companies than consumers.
Shippers have front-loaded cargo heading to the U.S. to get ahead of any potential increase in taxes as a result of the tariffs, according to CNBC’s Supply Chain Survey. Products from China, which face a cumulative tariff rate of 145%, accounted for much of the cargo shippers were sending to the U.S. earlier than planned.
This idea of an expedited spending timeline by consumers is popping up on first-quarter corporate earnings calls, too, as Wall Street analysts study whether demand for products ranging from smartphones to automobiles could fall later.
AT&T finance chief Pascal Desroches said Wednesday that customers have upgraded devices at a faster clip than expected since Trump unveiled his tariff plan.
Capital One CEO Richard Fairbank told analysts on Tuesday that upticks in spending on electronics and cars looked like signs of consumers speeding up purchases before the full tariff plan goes into effect. Ally Financial CEO Michael Rhodes said last week that a pull-forward in used car purchases could account for what he called strong volume recently seen by the auto loan provider.
The historical record shows that an acceleration in spending to beat higher prices later on doesn’t amount to much over the long term. For example, Japanese consumers in 1997 rushed to buy before a consumption tax rose to 5%, and again in 2014 and 2015 before the tax climbed to 8% and 10%, respectively. Afterward, however, spending either fell or flat lined, according to a Federal Reserve Bank of Richmond study.
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A security guard stands outside the building near signs advertising the International Monetary Fund/World Bank Spring Meetings in Washington, DC, on April 17, 2025.
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The International Monetary Fund forecasts U.S. tariffs will help lower the country’s fiscal deficit a touch in 2025 even as the U.S. growth and inflation outlooks worsen thanks to an intensifying trade war.
The 191-nation’s Fiscal Monitor report released Wednesday projects the U.S.’s overall federal deficit will fall to 6.5% of gross domestic product this year, down from 7.3% in 2024.
The narrower gap between spending and revenue is “contingent on higher tariff revenues,” according to the report.
The level was calculated based on the IMF’s “reference point” forecasts, which account for tariff announcements made as of April 4. This includes the U.S.’s reciprocal tariffs announced on April 2, but excludes subsequent rollouts such as the 90-day pause on higher rates and the exemption on smartphones, semiconductors and other technology goods.
Against this backdrop, the deficit is estimated to fall to 5.6% of GDP in the medium term as revenues rise 0.7%, according to the IMF.
Uncertain revenue
To be sure, the report noted “the magnitude of the tariff revenue increase is highly uncertain.”
One of the caveats to the reduced deficit projection is the degree to which tariffs will put downward pressure on imports into the U.S., itself dependent largely on how consumers respond to higher prices. This varies widely across products, the report noted.
Moreover, “the tariff schedule itself is uncertain and plays a crucial role,” the report continued.
The IMF acknowledged another risk to its forecast: whether tariffs lead to a wider slowdown in economic activity that could lead to a downturn in other segments of tax revenue — such as income tax — that offset higher revenues from tariffs.
“These projections are highly uncertain and do not account for measures under discussion in Congress, under budget reconciliation” negotiations, the fund said.
Yields on the benchmark 10-year Treasury note have surged in recent weeks, last trading near 4.40%, as higher tariffs were announced, inflation forecasts raised and as the dollar declined.
If the total size of U.S. government debt continues to surge, the IMF thinks it will push up longer-term interest rates and the cost of financing the debt.
“Specifically, an increase of 10 percentage points of GDP in U.S. public debt between 2024 and 2029 could lead to a 60-basis-point rise in the 5-year forward to 10-year rate,” the IMF staff wrote. One basis point equals 1/100th of a percent, or 0.01.
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