An unexpected positive surprise was provided by the International Monetary Fund in its new report on the outlook for the global economy, as it made an upward revision to its estimates in light of Donald Trump’s retraction of his most extreme tariff threats.

So, according to the new World Economic Outlook, global growth rates will reach 3% this year and improve slightly further to 3.1% in 2026. The new forecast recommends an increase of 0.2 percentage points compared with the April 2025 report, while for 2026, the increase is 0.1%.

However, despite this upgrade, the new data still points to a slowdown in the global economy compared to 2024, when growth rates reached 3.3%. And before the pandemic, the average annual rate was close to 3.7%.

“Global growth was revised up to 3% for 2025 and 3.1% for 2026, reflecting a stronger-than-expected path in economic activity, lower tariffs compared with early April, softer financial conditions, including a weakening dollar, and fiscal expansions in some regions,” the Fund’s chief economist, Pierre-Olivier Gourencha, stressed.

The international body noted that the White House’s “tariff de-escalation” has contributed to a recovery in global trade and broader economic growth. However, it also warned that US policies remain “highly unpredictable” and that risks to the global economy remain “firmly downside”.

Most regions benefited from the improved outlook, including the world’s leading economies, namely the US and China.

Specifically, the US is estimated for a growth upgrade to 1.9% this year and 2% next year, up from 1.8% and 1.7% respectively in the previous report.

Similarly, for China, this year’s outlook improves significantly by 0.8 points, with growth expected to be 4.8%.

As for inflation, the IMF has auspicious news on that front as well, predicting a gradual deflation.

Specifically, the report claims that global inflation is expected to fall to 4.2% in 2025 and 3.6% in 2026.

Reducing trade risk

Last April, the US President had threatened to impose stiff tariffs on imports from the world’s biggest exporters, including the UK, the European Union, China and South Korea, to – he claimed – tackle unfair competition.

Stock markets crashed and the US dollar fell as investors worried about the potential hit to global trade and turned to safe havens.

However, the mood has recently begun to change following a series of agreements with strategic US trading partners such as Britain, Japan and the European Union. In fact, these days a new round of talks with China is also “running” in Stockholm with the aim of at least extending the trade truce between Washington and Beijing.

It is no coincidence that the Fund’s economist commented that the US has “partially raised sterns” in the crucial trade area by reducing the average level of tariffs from 24% to around 17%. Although he cautioned that “despite positive developments, tariffs remain at historically high levels and global trade policy remains highly uncertain, with only a few countries having reached comprehensive trade agreements.”

The White House has set August 1 as the deadline for several countries, including Vietnam and South Korea, to sign trade agreements with the U.S.

“Risks remain in the downside direction. A failure in trade negotiations or a resurgence of protectionism could stall global growth and trigger inflation in some countries,”

“Prolonged uncertainty could weigh on investment, while geopolitical tensions and fiscal weaknesses pose additional threats. Although financial conditions have eased, they may suddenly tighten, especially in the event of threats to central bank independence,” the IMF’s chief economist added.

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Indirect jabs at Trump over Fed pressure

Notably, the IMF’s chief economist chose to comment indirectly but clearly on Donald Trump’s open pressure on the Federal Reserve over its interest rate policy. Although Pierre-Olivier Gourença naturally avoided mentioning specific names, he pointed out that global conditions could deteriorate further in the event of intensified attacks on central banks that would undermine their independence.

“It is critical to reaffirm and safeguard the principle of central bank independence. The evidence is compelling: independent central banks, with a clear and limited mandate to achieve price stability and growth, are vital to contain inflation expectations,” he said.

“The fact that central banks around the world have achieved a ‘soft landing’ despite the recent boom in inflation is largely due to the independence and credibility they have painstakingly built up,” he added.

Fiscal recommendations

Referring to the recommendations to policymakers, Gurinsas said economic policy should enhance confidence, predictability and sustainability by promoting price and financial sector stability, restoring fiscal space and promoting critical reforms.

“Reducing policy uncertainty is crucial. This is particularly true for trade policy, where the global economy needs clear, transparent and predictable rules.”

He noted that many countries need to address their fiscal weaknesses and rebuild their reserves, even if they face increased spending. “Central banks must maintain price and financial stability while protecting their independence,” he said.

In conclusion, Gourinsas noted that exchange rate flexibility remains critical, although “in some cases targeted interventions may be appropriate in the context of the IMF’s single policy framework.”

In addition, he stressed that structural reforms that facilitate policy choices and enhance long-term growth are necessary to sustain prosperity.