Global growth seen steady through 2027 despite trade uncertainty: IMF

It said the steady headline performance masks ‘divergent forces’, with headwinds from tariff and export-control uncertainty being offset by tailwinds from surging technology investment—especially linked to artificial intelligence (AI)—alongside fiscal and monetary support, broadly accommodative financial conditions, and private sector adaptability. The tech-driven uplift is more visible in North America and Asia than in other regions, the IMF said in its January 2026 World Economic Outlook Update, titled ‘Global Economy: Steady amid Divergent Forces’.

The global headline inflation is projected to ease from an estimated 4.1 per cent in 2025 to 3.8 per cent in 2026 and 3.4 per cent in 2027, broadly unchanged from October. The IMF expects inflation to return to target more gradually in the United States than in other large economies, with US inflation assumed at 2.4 per cent in 2026 and 2.2 per cent in 2027.

Since the October WEO, trade tensions have generally abated but remain prone to flare-ups. The IMF noted a US-China dispute involving export controls on semiconductors and rare earth minerals, followed by a truce that reduced bilateral tariffs until November 2026 and paused export controls. The US also removed tariffs on some agricultural products for all countries, offsetting previously announced higher tariffs on selected sectors, leaving the overall US effective tariff rate broadly in line with October assumptions.

Even so, policy uncertainty—while lower than October—remains far above January 2025 levels, the IMF said, pointing to complex bilateral agreements with limited public disclosure and a pending US Supreme Court decision expected in early 2026 on the President’s use of the International Emergency Economic Powers Act.

For advanced economies, growth is projected at 1.8 per cent in 2026 and 1.7 per cent in 2027. The US economy is forecast to expand 2.4 per cent in 2026 and 2 per cent in 2027, supported by fiscal policy and a lower policy rate, with the impact of higher trade barriers gradually waning. The euro area is projected to grow 1.3 per cent in 2026 and 1.4 per cent in 2027, with structural headwinds and weaker exposure to the tech investment boost keeping growth subdued. Japan is seen moderating to 0.7 per cent in 2026 and 0.6 per cent in 2027.

Emerging market and developing economies are expected to grow just above 4 per cent in 2026 and 2027. China’s 2026 growth forecast is revised up to 4.5 per cent (from October) as the assumed US tariff rate on Chinese goods falls under the truce and stimulus continues, before easing to 4 per cent in 2027 amid structural headwinds. India’s 2025 estimate is lifted to 7.3 per cent on a stronger outturn, with growth projected at 6.4 per cent in 2026 and 2027 as temporary supports fade.

Regional trends show the Middle East and Central Asia accelerating to 3.9 per cent in 2026 and 4.0 per cent in 2027, while sub-Saharan Africa is seen at 4.6 per cent in both years. Latin America and the Caribbean is projected at 2.2 per cent in 2026 and 2.7 per cent in 2027.

World trade volume growth is expected to slow from 4.1 per cent in 2025 to 2.6 per cent in 2026, before edging up to 3.1 per cent in 2027, reflecting front-loading and trade-flow adjustments to new policies.

The IMF said risks remain tilted to the downside. A re-evaluation of AI-driven productivity expectations could curb investment and trigger a sharp market correction that spreads beyond AI-linked firms, eroding household wealth and tightening financial conditions globally. Additional sector-specific tariffs—especially on upstream industries—or non-tariff measures targeting critical inputs such as rare earths could create supply bottlenecks and disrupt supply chains. Escalating geopolitical tensions, shipping disruptions, and domestic political uncertainty could further hit sentiment, commodity prices and trade.

On fiscal risks, IMF warned that larger deficits and high public debt could raise long-term interest rates and tighten broader financial conditions, with potential spillovers given the systemic role of major sovereign markets.

It urged policymakers to restore fiscal buffers and commit to credible medium-term consolidation, keep monetary policy focused on price stability, preserve central bank independence, and strengthen prudential oversight. To reduce uncertainty and broaden the sources of growth, it called for transparent trade policy frameworks, pragmatic cooperation, and structural reforms to improve labour mobility, skills, competition, and innovation—while supporting faster, more broadly shared productivity gains from AI.

ALCHEMPro News Desk (SG)