The International Monetary Fund (IMF) anticipates a slight acceleration in the global economy along with a continued decline in inflation for the current year. However, potential challenges loom, particularly due to the legislative intentions of President-elect Donald Trump, who has indicated plans for significant tax reductions, the imposition of tariffs on imports, relaxation of regulations governing businesses, and increased deportations of undocumented workers.

The IMF estimates that the world’s economy will expand by 3.3% in the upcoming years, an increase from the 3.2% predicted for 2024. Although the growth appears stable, it is far from remarkable; from 2000 to 2019, the global growth average was 3.7% annually. This sluggish trajectory can be attributed to the ongoing repercussions from major global disruptions, notably the COVID-19 pandemic and the conflict in Ukraine.

As a multinational financial institution comprised of 191 nations, the IMF focuses on enhancing economic growth, maintaining financial stability, and alleviating global poverty.

Predictions for global inflation, which surged post-COVID due to disruptions in supply chains leading to shortages and rising prices, suggest a decrease from 5.7% in 2024 to 4.2% this year and a further drop to 3.5% by 2026.

In a blog accompanying the IMF’s latest World Economic Outlook report, chief economist Pierre-Olivier Gourinchas cautioned that Trump’s proposed policies could lead to a short-term rise in inflation. Major tax cuts might overheat the economy, while significant tariffs on imported goods might temporarily raise prices and adversely affect countries that export to the U.S. Moreover, large-scale deportations could lead to labor shortages in various sectors, such as restaurants and construction, driving costs up and hindering economic expansion.

While Gourinchas noted that Trump’s deregulation plan could potentially enhance long-term growth by reducing bureaucratic barriers and encouraging innovation, he also expressed concerns that excessive deregulation might compromise financial security and create vulnerabilities in the U.S. economy, potentially leading to cycles of boom and bust.

Currently, Trump is set to take over a robust U.S. economy. The IMF reports an improved growth estimate for the U.S. economy at 2.7% for this year, representing a significant adjustment upwards from the previous October prediction of 2.2%.

Despite facing high interest rates introduced by the Federal Reserve to curb inflation, the American economy remains resilient, bolstered by a strong job market that empowers consumers, increased productivity, and an influx of immigrants addressing labor shortages.

The surprisingly solid performance of the U.S. economy starkly contrasts with the situation in advanced economies across Europe. The IMF predicts that the 20 eurozone countries will experience just 1% growth this year, slightly up from the 0.8% previously expected for 2024, but down from an earlier forecast of 1.2% in October. The challenges faced by these nations include waning momentum, particularly in manufacturing, reduced consumer sentiment, and sustained energy price shocks associated with the war in Ukraine, as Gourinchas articulated.

In terms of the second-largest global economy, China is projected to see a slowdown, with growth decreasing from 4.8% recorded last year to 4.6% in 2025 and a further dip to 4.5% in 2026. The downturn in China’s housing market has adversely impacted consumer confidence. Without adequate government interventions, such as lowering interest rates or increasing spending and tax reductions, China risks falling into a debt-deflation stagnation trap, wherein declining prices discourage consumer expenditure and exacerbate the burden on borrowers.

The IMF’s predictions were released just after the World Bank outlined its growth forecast of 2.7% for the years 2025 and 2026, remaining consistent with the rates observed during 2023. The World Bank, which focuses on providing loans and grants to poorer nations, indicated that the anticipated growth wouldn’t be sufficient to combat poverty in low-income regions. Typically, the IMF’s global growth estimates are higher than those of the World Bank due to its greater emphasis on rapidly developing economies.