The International Monetary Fund said Friday that the U.S. economy is on track to grow faster than previously expected this year, citing a strong labor market and accelerating investment.
In its latest World Economic Outlook report, the IMF forecast the US economic growth rate in 2025 to be 2.7%, higher than the expected 2.2%. This is in stark contrast to the downgrade in growth forecasts for the euro area, which the Fund attributed primarily to weakness in the manufacturing sector and rising political uncertainty.
“The big problem is the disconnect between the United States and the rest of the world,” Pierre-Olivier Grinchat, the IMF’s chief economist, said on a call with reporters this week. “While potential output growth is higher in the United States than before the pandemic, potential growth is lower in other regions such as the euro area and China.”
New economic forecasts released by the fund on Friday showed fears of a post-pandemic global economic contraction appear to have been averted, although growth remains slow in many countries. Based on analysis from October. In the latest report, IMF economists expect global output to grow by 3.3% this year and next, slightly higher than the fund’s previous forecast.
However, newly elected governments around the world are increasing economic policy uncertainty, posing risks that could change the trajectory of the global economy in the coming months, the IMF warned.
These wildcards are particularly acute in the United States, where the incoming Trump administration’s proposed tax cuts, deregulation, tariffs, and immigration restrictions could lead to inflation. Mr Grinchas said all of these proposals had a common element: a readiness to increase price pressure.
The IMF said in a report that fiscal policy easing, including tax cuts, could boost U.S. growth in the short term. “In the short term, that risk could further widen the already ongoing disconnect between the United States and the rest of the world,” Grinchas added.
But the fund warned that expansionary measures could disrupt markets and the economy in the long term. And while potential deregulation under President-elect Donald J. Trump could boost investment and short-term growth, “excessive” regulatory rollbacks could ultimately lead to “boom-bust dynamics,” the IMF said, and could have ripple effects in other countries.
According to the IMF report, risks to economic growth in the euro area and China center on the possibility of continued poor performance in manufacturing, weakening consumer confidence and rising protectionist policies.
The strength of the global economy continues to be led by the United States, whose growth has outpaced that of other developed countries in the G7 countries.
IMF Managing Director Kristalina Georgieva said, “Given the size and role of the U.S. economy, there is strong interest around the world in the next administration’s policy direction, particularly on tariffs, taxes, deregulation, and government efficiency.” Of course there are,” he said. He said this at a press conference last week.
Inflation in the United States has slowed significantly since last year, but progress in curbing price increases has stalled in recent months. The Federal Reserve, which began cutting interest rates last year, has signaled only two cuts in 2025, but some forecasters predict policymakers won’t cut rates at all in the coming months. I think it’s possible.
The global economy has proven amazingly resilient despite years of turmoil. According to IMF forecasts, global inflation is expected to fall to 4.2% in 2025.
“This will help end the global turmoil of recent years, including the pandemic and Russia’s invasion of Ukraine, which caused the largest spike in inflation in 40 years,” Grinchas said in an IMF blog post.
Alan Rappeport contributed reporting.
