The International Monetary Fund (IMF) has raised its global growth forecast, projecting faster economic expansion this year while cautioning that rising trade barriers and geopolitical strains could still derail progress. In its latest quarterly outlook released on Monday, the IMF said the world economy is now expected to grow by 3.3%, up from an earlier estimate of 3.1%. The Fund also upgraded its U.S. growth outlook for 2026 to 2.4% from 2.1%, though it slightly trimmed its 2027 projection to 2%.
These forecasts are based on the assumption that tariffs and trade restrictions remain at December levels, an outlook the IMF admits is already under pressure. President Donald Trump recently announced plans to introduce 10% tariffs on goods from several European countries from February 1, rising to 25% by June, in a move aimed at forcing Denmark to sell Greenland to the United States. “There are, of course, risks still on the trade side and broadly geopolitical risks,” said IMF chief economist Pierre-Olivier Gourinchas, adding that “The effects of these would build over time.”
The IMF noted that recent economic resilience has been driven largely by massive investment in artificial intelligence and related infrastructure. While this surge has helped cushion the impact of higher trade costs, the Fund warned that overreliance on AI investment creates vulnerabilities. A sudden shift in investor confidence about AI’s real-world potential could spark sharp stock market losses, beginning with tech firms and spreading more widely, threatening household wealth and consumer spending.
According to the IMF, U.S. equity valuations are about half as overstretched as during the 2001 dot-com bubble, but today’s risks are amplified because stock market value now equals about 226% of economic output, far above the 132% level seen then. As a result, even a “moderate” market correction could drag global growth down to 2.9%, prompting central banks to consider cutting interest rates. Conversely, if AI adoption proves more productive than expected, global growth could rise to 3.6% this year and add up to 0.8 percentage points annually over time.
The report also highlighted mounting pressure on central bank independence, particularly in the United States. The IMF stressed that rate cuts should occur “only with robust evidence of inflation expectations remaining anchored and inflation returning toward target,” a stance that could deepen tensions between the Federal Reserve and President Trump. Emphasizing the importance of autonomy, Gourinchas said, “It’s really important that they remain independent… The expectation that they will do what is needed is absolutely critical in bringing inflation down.”
Finally, the IMF upgraded growth forecasts for major emerging economies, lifting China’s 2026 outlook to 4.5% and India’s to 6.4%. However, Gourinchas warned that widening growth gaps between regions could pose a longer-term risk to global economic stability.
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