The global economy is currently enjoying a period of unexpected strength, but this is merely a temporary reprieve before a more challenging period begins, according to a sobering new report from the International Monetary Fund (IMF). The fund has lifted its global GDP growth forecast for this year to 3.2%, attributing the resilience to pre-emptive consumer spending and less severe tariffs than initially feared.
However, the IMF warns not to mistake this short-term gain for long-term health. The report’s core message is that the outlook remains “dim,” with significant risks accumulating beneath the surface. The fund explicitly states that the full, negative impact of protectionist trade policies has been delayed, not averted, and will eventually weigh on business investment and growth.
This “slow-burn” effect is a central theme of the report, which also highlights growing concerns over restrictive immigration policies. In the United States, for example, the IMF projects that such measures could significantly hamper economic output and fuel inflation in labour-intensive industries, creating a drag on the entire economy.
Furthermore, the IMF is sounding the alarm on financial market stability. It points to “stretched valuations” for stocks, suggesting that a painful market correction is a distinct possibility. Such an event could be triggered if investors lose faith in the transformative power of AI, leading to a collapse in the technology-led investment that has recently propped up growth.
For the UK, the report brings a mix of a minor growth upgrade and a major inflation warning, advising the Bank of England against premature interest rate cuts. The overarching conclusion is clear: policymakers should not be lulled into a false sense of security by today’s numbers, as the economic challenges of tomorrow are mounting.