WASHINGTON (AP) — The International Monetary Fund expects the world economy to grow a little faster and inflation to keep falling this year. But it warned that the outlook is clouded by President-elect Donald Trump’s promises to slash U.S. taxes, impose tariffs on foreign goods, ease regulations on businesses and deport millions of immigrants working illegally in the United States.
The Washington-based lending agency expects the world economy to grow 3.3% this year and next, up from 3.2% in 2024. The growth is steady but unimpressive: From 2000 to 2019, the world economy grew faster – an average of 3.7% a year. The sluggish growth reflects the lingering effects of big global shocks, including the COVID-19 pandemic and Russia's invasion of Ukraine.
The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and to reduce global poverty.
Global inflation, which had surged after the COVID-19 pandemic disrupted global supply chains and caused shortages and higher prices, is forecast to fall from 5.7% in 2024 to 4.2% this year and 3.5% in 2026.
But in a blog post that accompanied the release of the IMF’s latest World Economic Outlook report, the fund’s chief economist, Pierre-Olivier Gourinchas, wrote that the policies Trump has promised to introduce “are likely to push inflation higher in the near term.’’
Big tax cuts could overheat the U.S. economy and inflation. Likewise, hefty tariffs on foreign products could at least temporarily push up prices and hurt exporting countries around the world. And mass deportations could cause restaurants, construction companies and other businesses to run short of workers, pushing up their costs and weighing on economic growth.
Gourinchas also wrote that Trump’s plans to slash regulations on business could “boost potential growth in the medium term if they remove red tape and stimulate innovation.’’ But he warned that “excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the U.S. economy on a dangerous boom-bust path.’’
Trump inherits a strong U.S. economy. The IMF expects U.S. growth to come in at 2.7% this year, a hefty half percentage point upgrade from the 2.2% it had forecast in October.
The American economy — the world's biggest — is proving resilient in the face of high interest rates, engineered by the Federal Reserve to fight inflation. The U.S. is benefiting from a strong job market that gives consumers the confidence and financial wherewithal to keep spending, from strong gains in productivity and from an influx of immigrants that has eased labor shortages.