IMF Cuts Global Growth Outlook
IMF and OECD forecast 2025 global GDP at 3.0-3.2% down from 3.3%, with inflation at 4.2% as tariffs could hit Canada 21% and Mexico 9%. The 2026 outlook sits at 2.9% with steady growth expected despite tariff headwinds and continued AI efficiency gains.
The lowered global growth forecasts reflect significant headwinds from trade tensions, with the OECD warning that escalating restrictions pose a threat to North America's economic stability. Should the United States implement a 25% tariff on nearly all imports from Canada and Mexico, the impact could be severe. Under such a scenario, the OECD projects Canada's GDP growth could be slashed by more than half, to just 0.7% in 2025 and 2026. For Mexico, the consequences could be even more dire, with the economy potentially contracting by 1.3% in 2025, pushing the country into a recession. In response to potential U.S. tariffs, both Canada and Mexico have signaled their intent to retaliate. Canada has already imposed reciprocal 25% tariffs on a range of U.S. goods and is considering further measures. These tit-for-tat actions risk disrupting tightly integrated North American supply chains, particularly in the automotive sector. A key factor counterbalancing these trade-related risks is the ongoing investment in artificial intelligence. Economists estimate that AI-related spending on infrastructure like data centers and chips contributed significantly to economic growth in 2025. Some models suggest AI could boost total factor productivity by as much as 0.6 percentage points annually. Looking ahead, the IMF and other institutions emphasize that policy uncertainty remains a primary risk. The future trajectory of the global economy will largely depend on whether major economies move toward de-escalating trade disputes and fostering a more predictable policy environment. The divergence in economic performance is expected to continue, with advanced economies growing at a much slower pace than emerging markets and developing economies. While the U.S. may see some support from AI investment and fiscal policy, the Euro Area's growth is anticipated to be more modest. Global inflation is expected to continue its downward trend, though it may remain above target in the United States. The OECD warns that broad tariff hikes could add to inflationary pressures, potentially forcing central banks to keep interest rates higher for longer. Policymakers are being urged to focus on rebuilding fiscal buffers and implementing structural reforms to enhance economic resilience. The IMF has stressed the need for credible and sustainable policies to restore confidence and navigate the increasing fragmentation of the global economy.
