IMF: Tariffs Haven’t Toppled Growth — Yet. But the Horizon Still Looks Cloudy

With input from the Guardian, the Financial Times, the Hill, the New York Times, and CNN.

The world economy has taken Donald Trump’s tariff barrage on the chin and kept moving, the IMF says — but don’t mistake resilience for a clean bill of health. In its new World Economic Outlook, the Fund nudged this year’s global growth forecast up to 3.2% from 3.0%, while leaving next year stuck at a sluggish 3.1%. That’s better than the summer gloom, yet still well below the pre-pandemic pace.

Britain gets a small upgrade too: the IMF now sees UK GDP rising about 1.3% this year, though it trims next year to the same 1.3%. The sting is inflation. The UK is on track for the highest price growth in the G7 this year and next, with the Fund lifting its 2025 inflation call to 3.4% and only seeing it easing to roughly 2.5% in 2026. Strong wage gains and firmer inflation expectations are keeping the Bank of England on edge; the IMF’s advice is to tread very carefully on rate cuts.

So why hasn’t the tariff shock bitten harder? The IMF argues the hit was smaller than feared — Washington carved out exemptions and inked side deals — and companies raced to front-load orders and rejig supply chains before levies landed. We’ve seen this movie before, the Fund adds, pointing to Brexit: business investment can hold up at first, then fade as uncertainty compiles. In other words, the lag is the risk.

Plenty of storm clouds crowd that horizon. Tighter immigration rules, especially in the US, could shave 0.3 to 0.7 percentage points off American GDP and stoke price pressures where immigrant labor is pivotal — think construction, hospitality, farm work and personal services. Financial markets are another worry. With “stretched valuations” and investors curiously calm about policy whiplash, the IMF warns of a “sharp correction,” particularly if the AI gold rush looks frothier than fundamentals. A tech-led selloff would likely drag down data-center and chip investment that’s been propping up capex.

The Fund’s headline is blunt despite the upgrades: once you strip out the pre-tariff stockpiles and the statistical noise from policy flip-flops, the global outlook is still dim — near-term and long-term. Protectionism’s full costs tend to arrive late, not never.