US steadies 2025 growth outlook as Europe struggles – IMF

LONDON (ICIS)–Global economic growth this year is expected to increase modestly compared to 2024, the International Monetary Fund (IMF) said on Friday, as stronger expectations of US growth offset an increasing bearish outlook for Europe.

Global GDP is expected to increase 3.3% this year, according to IMF’s latest economic outlook.

Representing a 0.1 percentage point increase from the fund’s October 2024 outlook, the uptick is driven by a more robust forecast for the US offsetting weaker expectations for the eurozone and the Middle East.

The US economy is expected to expand 2.7% this year, a 0.5 percentage point increase from the IMF’s October forecast, driven by a strong wealth effect – where consumers spend more as the value of their assets rise –  and supportive financial conditions.

Eurozone growth for the year is expected at 1%,  a 0.2 percentage point downgrade from the IMF’s previous estimate, as continued weakness for manufacturing and exports continued to weigh on the bloc.

Industrial weakness, political volatility and policy uncertainty all weighed on eurozone growth expectations, with substantially weaker expectations for many core economies, particularly Germany and France.

Germany’s 2025 GDP is expected to expand by 0.3%, a 0.5 percentage point downgrade compared to October, while projected French growth of 0.8%represents a 0.3 percentage point markdown.

China’s economy is expected to grow 4.6% this year, a 0.1 percentage point increase on the IMF’s October projections but below official targets of 5% and a decline from 2024, with 2026 expected to be weaker still at 4.5%.

A $1.4 trillion stimulus package intended to alleviate local government debt burdens drove the modest uptick in the IMF’s growth expectations for the country.

China’s growth rate next year is expected to be supported by increases to the statutory retirement age, which is expected to slow the decline in labor supply, the fund added.

Moves by the OPEC+ alliance of countries to extend production cuts has resulted in  1.3 percentage point downgrade for Saudi Arabia growth expectations, to 3.3%. This downgrade also drove down growth projections for the Middle East and North Africa (MENA) as a whole, with the IMF cutting 0.5 percentage points of 2025 regional growth expectations to 3.5%

Strong non-OPEC crude supplies and weak China demand are likely to drive a 2.6% decline in energy commodity prices, substantially below previous estimates, according to the IMF, while commodity prices overall are likely increase.

Latin American growth expectations were  unchanged from previous IMF estimates at 2.5%.

Despite stronger than previously projected US growth expectations, fresh tariff measures introduced by incoming President Donald Trump could hit global growth expectations in the mid-term, the IMF said.

Fresh tariff measures could place upward pressure on inflation, along with the cyclic market positions of many key economies are more conducive to higher inflation today than in 2016, the IMF added.

Restrictions on difficult-to-substitute raw materials and intermediate goods as a result of US tariffs or retaliatory measures could also heat up markets.

“The risk of renewed inflationary pressures could prompt central banks to raise policy rates and intensify monetary policy divergence. Higher-for-even-longer interest rates could worsen fiscal, financial, and external risks,” the IMF said in the January world economic outlook.

“ A stronger US dollar…could alter capital flow patterns and global imbalances and complicate macroeconomic trade-offs.”

Focus article by Tom Brown

Thumbnail photo: The bull on Wall Street (Source: Shutterstock)