According to the International Monetary Fund (IMF), the global economy is set to grow slightly faster this year, and inflation is expected to continue its downward trend. However, challenges remain, particularly due to the policies proposed by President-elect Donald Trump, which could impact the economy in several ways.
The IMF estimates global growth at 3.3% for 2024 and 2025, a slight increase from 3.2% in 2024. This growth rate feels modest compared to the average of 3.7% seen between 2000 and 2019. Slow growth has been attributed to ongoing issues from global events like the COVID-19 pandemic and the conflict in Ukraine.
Global inflation, which surged during the pandemic, is projected to drop from 5.7% in 2024 to 4.2% this year and continue to 3.5% in 2026. These changes will help ease economic pressure for many households.
However, in a recent blog post, IMF chief economist Pierre-Olivier Gourinchas warned that Trump’s tax cuts and tariff plans could push inflation higher in the short term. Tax cuts may lead to an overheated economy, driving prices up. Similarly, new tariffs could increase costs for consumers and impact businesses worldwide.
Another concern is the potential for mass deportations, which could create labor shortages, especially in industries like construction and hospitality. Less available labor might drive up costs and slow economic growth.
On a more positive note, Gourinchas also mentioned that reducing regulations could foster innovation and boost economic growth in the long run. Still, excessive deregulation might weaken essential financial protections, leading to instability.
The U.S. economy, which is the largest in the world, is currently showing strong performance. The IMF expects growth here to be around 2.7% this year, an increase from the previous estimate of 2.2%. The U.S. is benefitting from a robust job market, which encourages consumer spending, along with increased productivity and a rise in immigration that helps address labor shortages.
In contrast, the economic scene is less optimistic in Europe. The 20 eurozone countries are projected to grow just 1% this year, impacted by weak manufacturing momentum and low consumer confidence. The fallout from rising energy costs due to the Ukraine crisis continues to weigh heavily on these economies.
China, the world’s second-largest economy, is also experiencing a slowdown. Growth is expected to decline from 4.8% last year to about 4.5% by 2026. A struggling housing market in China is affecting consumers’ willingness to spend. If the government does not take adequate measures, such as reducing interest rates or increasing spending, China could face a potential economic stagnation.
It’s worth noting that the World Bank predicts global growth of 2.7% for 2025 and 2026, similar to this year. However, this growth is seen as insufficient to significantly reduce poverty in low-income countries. The IMF often provides a more optimistic growth forecast than the World Bank, as it tends to focus on developing nations that are growing rapidly.
