The revised forecast now stands at 4.1 percent, down from its April estimate of 4.3 percent.
The report, an updated version of the World Economic Outlook (WEO) released on Tuesday, did not elaborate on the specific reasons behind this revision.
The IMF said in July that it will combine the fifth and sixth reviews of Egypt’s ongoing $8 billion loan programme, with both slated for completion in December.
The fifth review was primarily scheduled to be completed in June, yet the implications for the regional geopolitical tensions impeded that.
At the regional level, the IMF projects that the Middle East and Central Asia will experience an uptick in growth, reaching 3.4 percent in 2025 and 3.5 percent in 2026, reflecting a broader stabilisation following recent economic pressures.
Global growth slows, but revisions improve 2025 outlook
On a global scale, the Fund anticipates modest deceleration in economic growth over the coming years, forecasting three percent growth in 2025 and 3.1 percent in 2026.
These figures fall below both the 2024 estimate of 3.3 percent and the pre-pandemic average of 3.7 percent, indicating a shift back to slower long-term trend growth.
Despite the overall slowdown, the IMF upgraded its 2025 global growth forecast from the April outlook, driven by stronger-than-expected international trade, a lower effective global tariff rate, and improved global financial conditions.
Countries, including China, saw some of the most notable upward revisions.
Trade activity boosts short-term forecasts, but raises 2026 risks
The report highlights a short-term boost from front-loading of trade flows amid elevated policy uncertainty and expectations of trade restrictions.
As a result, global trade volume for 2025 was revised upward by 0.9 percent.
However, the report expected this offset to fade in the second half of 2025, with a projected “payback” effect in 2026, leading to a 0.6 percent downward revision in global trade for that year.
According to the WEO, the weaker US dollar is magnifying the impact of tariffs on the country’s trade balances rather than offsetting it.
While tariffs are positively affecting the US current account, their impact is being more than neutralised by the government’s expansionary fiscal stance.
Medium-term outlooks suggest that fiscal stimulus in current account surplus economies may help reduce global imbalances.
Disinflation Trend continues globally
Global inflation continues on a downward trajectory, with headline inflation projected to fall to 4.2 percent in 2025 and 3.6 percent in 2026, broadly unchanged from the April WEO.
This is attributed to cooling demand and lower energy prices, although regional variations persist.
In the US, tariffs are acting as a supply-side shock, gradually feeding into consumer prices and pushing inflation above the Federal Reserve’s two percent target through 2026.
Meanwhile, inflation in the euro area is expected to ease due to currency appreciation and one-off fiscal policies.
In China, core inflation was revised slightly upward, reflecting higher-than-expected recent readings.
Downside risks still overshadow outlook
The report asserted that downside risks continue to dominate. The fragile trade policy balance could be disrupted by escalating protectionism.
If the tariff levels proposed by the US administration, including up to 50 percent on copper, are implemented, global growth could decline by around 0.2 percent in 2025.
Additional sectoral tariffs, particularly in electronics and pharmaceuticals, and nontariff barriers targeting key inputs may result in supply chain disruptions and heightened inflationary pressures.
Even without new measures, trade policy uncertainty could discourage investment, especially in export-driven economies.
Moreover, rising geopolitical tensions, particularly in the Middle East and Ukraine, pose further threats by potentially introducing supply shocks, disrupting shipping routes, and driving up commodity prices.
This scenario would likely weigh on growth and rekindle inflation, placing central banks in more difficult policy positions.
As per the report, fiscal vulnerabilities are also a concern. Countries like Brazil, France, and the US are running large fiscal deficits alongside historically high public debt, potentially tightening global financial conditions and increasing market volatility, especially if concerns about Us fiscal sustainability and the dollar’s role in the global monetary system escalate.
Moreover, the front-loading of trade earlier this year may leave firms exposed to shocks.
Inventory overhangs could reduce import demand and result in higher holding costs or losses if expected demand fails to materialise.
Structural reforms, trade deals offer brighter long-term path
On a more positive note, the IMF notes that a breakthrough in trade negotiations could help reduce tariffs, lower uncertainty, and foster investment.
If these agreements extend to digital services and foreign investment, they could yield long-term gains in productivity and resilience.
Additionally, such progress could encourage structural reforms in areas such as labour markets, business regulation, and competition, setting the stage for more sustainable medium-term growth in a challenging global environment.
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