Global Expansion Holds at 3.3% for 2025–2026 as Divergent Paths and Downside Risks Persist

On July 29, 2025, the International Monetary Fund (IMF) published its much-anticipated World Economic Outlook Update, reaffirming the global growth forecast at 3.3 percent for both 2025 and 2026. The assessment, presented by IMF Chief Economist Pierre-Olivier Gourinchas at a virtual press briefing, underscores a backdrop of resilient expansion despite mounting headwinds from geopolitical tensions, tightening financial conditions, and uneven post-pandemic recovery patterns.

Advanced economies are expected to see moderate gains, with growth edging up to 1.8 percent in 2025 before rising slightly in 2026. The United States, buoyed by robust consumer spending and firm labor markets, received an upward revision of 0.2 percentage points for 2025, lifting its forecast to 2.4 percent. In contrast, several major emerging market and developing economies (EMDEs) faced downgrades, particularly those grappling with high debt levels and currency pressures, leading to a marginal reduction in their average expansion rate to 4.1 percent.

Inflation has cooled from the peaks of 2022 but remains above central bank targets in many regions. Global headline inflation is projected to decelerate from an estimated 6.1 percent in 2024 to 4.4 percent in 2025, with a further decline to 3.2 percent in 2026. However, service-sector price pressures and supply-chain snarls could challenge policymakers’ efforts to maintain a steady disinflation trajectory, necessitating cautious calibrations of monetary policy.

The Update highlights a pronounced divergence in economic performance: while advanced economies benefit from policy buffers and fiscal support measures, EMDEs face an uphill battle against tighter external financing conditions and capital outflows. China’s growth forecast was trimmed by 0.3 percentage points to 4.8 percent in 2025, reflecting a gradual slowdown in domestic demand and lingering real estate sector strains. Meanwhile, large commodity exporters are projected to enjoy a temporary boost from elevated energy and food prices, which may prove unsustainable as global demand patterns shift.

Fiscal policy stance is projected to remain moderately supportive, but the IMF warns that many countries must accelerate efforts to rebuild fiscal cushions eroded by pandemic-era relief programs. Public debt ratios are expected to plateau at around 95 percent of GDP in advanced economies and 60 percent in EMDEs, leaving little room for maneuver in the event of new shocks.

Risks to the forecast are tilted to the downside. Geopolitical flashpoints such as the Russia-Ukraine conflict and Middle Eastern tensions could exacerbate energy market volatility, while a sharper-than-expected tightening of global financial conditions might trigger spillovers to vulnerable economies. A resurgence in COVID-19 variants or new pandemics remains a tail risk, with the potential to disrupt supply chains and dampen consumer confidence.

Climate-related shocks add another layer of uncertainty. The Update notes that extreme weather events—ranging from heatwaves and wildfires to floods—have inflicted significant economic costs in recent years, particularly in low-income countries with limited adaptive capacity. Scaling up investments in green infrastructure and integrating climate resilience into fiscal frameworks are identified as urgent priorities.

On the positive side, ongoing technological advancements and digitalization trends offer long-term productivity gains. The IMF encourages policymakers to harness innovation by investing in skills training and ensuring equitable access to digital infrastructure. Cross-border cooperation on taxation of digital services and multilateral debt relief initiatives for distressed borrowers could also mitigate some of the underlying vulnerabilities in the global financial architecture.

Looking ahead, the IMF urges a balanced policy approach that fosters growth while safeguarding financial and environmental stability. “The global economy stands at a crossroads,” Gourinchas remarked. “We must navigate short-term challenges without losing sight of the structural reforms necessary for a more inclusive and sustainable future.”

The next full edition of the World Economic Outlook is scheduled for October 2025, at which time the IMF will provide a comprehensive reassessment of the medium-term prospects amid evolving economic conditions.