Tariffs: The global economy is holding firm... for now

The curves are holding up. Despite the uncertainty caused by Donald Trump's tariffs , the global economy appears to be holding up for now, performing better than anticipated three months ago, according to the IMF's latest growth forecasts published on Tuesday, July 29.

On the occasion of the final update of its annual report on the world economy, the International Monetary Fund (IMF) emphasizes the difficulty of making solid forecasts, while the announcement of potential trade agreements, such as recently between Washington and the European Union (EU), could change the situation.

Despite this, the institution expects the global economy to end the year on a slightly more positive note than anticipated three months earlier, with growth now expected to reach 3%, or 0.2 percentage points (pp) better than in April.

This level of growth would, however, confirm the slowdown observed over the past two years, since 2024 ended with a stronger global GDP growth of 3.3%. "The shock caused by customs duties seems less violent in the immediate future than what we anticipated in April," the Fund's chief economist, Pierre-Olivier Gourinchas, told AFP, partly "due to the announced pauses and certain signed agreements."

Result: customs duties applied to products entering the United States are on average, at the time of publication of the report, 17%, calculates the Fund, an estimate close to that of the Budget Lab of Yale University (17.5%), which makes them the highest at least since the 1930s.

But businesses' anticipation of these surcharges "supported economic activity" because they "built up stocks before [they] came into force," even if "this will have consequences" on future growth, warned Pierre-Olivier Gourinchas. "What you already have in stock, you will not need to obtain later in the year or next year," he emphasizes.

The observed improvement primarily concerns emerging countries, whose growth is expected to be on average 0.4pp higher than in the previous estimate, compared to only +0.1pp for advanced economies. This is particularly the case for the United States, now expected at 1.9% (+0.1pp), representing a massive slowdown compared to 2024 (+2.8%), notably due to inflation that is beginning to "show signs of taking customs duties into account," Pierre-Olivier Gourinchas emphasized.

At the European level, while the Eurozone is expected to do slightly better this year than anticipated in April, at 1% (+0.2pp), it will not be thanks to its main economies. Forecasts for France and Spain remain unchanged, with +0.6% and +2.5% respectively, while they have been revised by just +0.1pp for Germany, which should narrowly avoid recession this year (0.1% growth), and Italy, which is still idling (0.5% growth).

Conversely, forecasts for China have been revised upwards sharply (+0.8pp), returning to a level closer to what was achieved in 2024 (5% then, 4.8% expected for 2025). This reflects in particular "the buildup of stocks" of Chinese products, particularly in the United States, according to the IMF economist.

China nevertheless remains "faced with headwinds" , notes Pierre-Olivier Gorinchas, with "domestic demand remaining fairly weak, consumer confidence tenuous and a real estate sector still representing the black spot of the Chinese economy, which will weigh on growth both in 2025 and 2026".

Mexico also saw its growth revised upwards (+0.5pp) and should be able to avoid recession, despite exports being heavily affected by customs duties. The United States is its largest trading partner.

The only exception among emerging countries: Russian growth has been significantly revised downwards (-0.6pp) and is expected to be below 1% (0.9%) in 2025, a far cry from the 4.3% achieved in 2024. This is explained by "the fall in oil prices", the effects of a restrictive monetary policy to combat inflation as well as falling public spending.