The Global Economy is Expected to Grow by 2.3% to 3.1% in the Second Half of 2025

The global economy is expected to grow by 2.3% to 3.1% in the second half of 2025, according to various research institutes. The IMF raised its forecast to 3.0% for 2025 and 3.1% for 2026, citing stronger front-loading of activity, easing tariffs, a weaker US dollar, and fiscal expansion. The World Bank projects a slower pace—2.3% in 2025, the slowest since 2008 outside recession. And, Morgan Stanley estimates global growth at 2.9% (annual), but slowing to 2.5% in fourth quarter.
The International Monetary Fund (IMF) has predicted stronger global economic growth than it forecast in April in part due to some U.S. tariffs on goods being softened.
A surge in U.S. imports as firms tried to beat impending higher import taxes and actions by some governments to boost growth bumped up its latest forecast.
However, higher tariffs and more uncertainty could lead to weaker growth and slower economic activity, the IMF warned.
Meanwhile, UK growth is predicted to be 1.2% this year, and 1.4% in 2026, unchanged from revised forecasts set out in May.
The UK is set to be the third fastest growing economy out the world’s so-called most advanced economies this year and the next, after U.S. and Canada.
The IMF, which is a group of 190 countries that work together to try to stabilise the global economy, said the upgrade to its global predictions included trade “front-loading” in recent months – referring to the rush of imports into the U.S.
It forecast global growth of 3% in 2025 and 3.1% in 2026, up from 2.8% and 3% in its April report.
However, that is still below the 3.3% rate it had projected for both years in January, prior to U.S. President Donald Trump taking office, and the pre-pandemic historical average of 3.7%.
American firms rushed products into the country earlier this year to try to get ahead of new taxes on imports pledged by Trump.
The IMF said this created risks that could add to any future economic shocks, including companies, having too much stock, making future imports less necessary.
Also, firms may have to pay more to store goods, and there was also a risk of items becoming obsolete, it said.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said a modest decrease in trade tensions, however fragile, had contributed to the resilience of the global economy.
However, he added: “The world economy is still hurting, and it’s going to continue hurting with tariffs at that level, even though it’s not as bad as it could have been.”
He added that the boost from front-loading is going to “fade away” and it risked being a drag on economic activity in the second half of the year and into 2026.
The IMF said the global pace of price rises was expected to fall to 4.2% in 2025 and 3.6% in 2026.
But it said inflation would probably remain above target in the U.S. as import taxes were passed through to U.S. consumers in the second half of the year.
Trump’s trade policies, which he argues will boost U.S. manufacturing and jobs, have upended global trade.
He brought in a universal tariff of 10% on goods from nearly all countries from April and is threatening higher duties to be imposed from Friday.
Far higher tariffs that the U.S. and China have imposed on each other have been paused until 12 August, with the parties engaged in talks in Stockholm this week.
Steeper tariffs that have been announced on products including cars, steel and other metals, pharmaceuticals and computer chips, have not been included in the IMF forecast.
Trade deals with Japan and the EU have also not been included in the numbers.
“We’ll have to see whether these deals are sticking, whether they’re unravelled, whether they’re followed by other changes in trade policy,” Gourinchas said.

According to the World Bank’s latest Global Economic Prospects report, heightened trade tensions and policy uncertainty are expected to drive global growth down this year to its slowest pace since 2008 outside of outright global recessions. The turmoil has resulted in growth forecasts being cut in nearly 70% of all economies—across all regions and income groups.
Global growth is projected to slow to 2.3% in 2025, nearly half a percentage point lower than the rate that had been expected at the start of the year. A global recession is not expected. Nevertheless, if forecasts for the next two years materialize, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.
“Outside of Asia, the developing world is becoming a development-free zone,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. “It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6% annually in the 2000s to 5% in the 2010s—to less than 4% in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5% in the 2000s to about 4.5% in the 2010s—to less than 3% in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”
Growth is expected to slow in nearly 60% of all developing economies this year, averaging 3.8% in 2025 before edging up to an average of 3.9% over 2026 and 2027. That is more than a percentage point lower than the average of the 2010s. Low-income countries are expected to grow 5.3% this year—a downgrade of 0.4 percentage point from the forecast at the start of 2025. Tariff increases and tight labor markets are also exerting upward pressure on global inflation, which, at a projected average of 2.9% in 2025, remains above pre-pandemic levels.
Slowing growth will impede developing economies in their efforts to spur job creation, reduce extreme poverty, and close per capita income gaps with advanced economies. Per capita income growth in developing economies is projected to be 2.9% in 2025 – 1.1percentage points below the average between 2000 and 2019. Assuming developing economies other than China are able to sustain an overall GDP growth of 4% – the rate forecast for 2027 – it would take them about two decades to return to their pre-pandemic trajectory with respect to economic output.
Global growth could rebound faster than expected if major economies are able to mitigate trade tensions – which would reduce overall policy uncertainty and financial volatility. The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026.
“Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,” said  M. Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.”
The report argues that in the face of rising trade barriers, developing economies should seek to liberalize more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade—including through regional agreements. Given limited government resources and rising development needs, policymakers should focus on mobilizing domestic revenues, prioritizing fiscal spending for the most vulnerable households, and strengthening fiscal frameworks.
Finally, to accelerate economic growth, countries will need to improve business climates and promote productive employment by equipping workers with the necessary skills and creating the conditions for labor markets to efficiently match workers and firms. Global collaboration will be crucial in supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing , and, for countries embroiled in active conflicts, emergency relief and support.
The global economy will see its slowest growth in 2025 since the Covid pandemic. New U.S. trade policy created a structural shock to the world’s economy, with the uncertainty generated by higher tariffs crimping demand globally.

Morgan Stanley Research forecasts the global economy will expand at an annual rate of 2.9% in 2025 and 2.8% in 2026, down from 3.3% in 2024. This scenario assumes that the U.S. will continue trade negotiations but will not fully eliminate tariffs.
“The economic damage is underway, and even fully undoing the tariffs would not restore global growth to where it would have been without them,” says Seth Carpenter, Morgan Stanley’s Chief Global Economist. “Conversely, a re-escalation of tariffs to April’s peak rates would likely spell a recession for the U.S. and thereby the world. We expect higher barriers on trade overall than in the beginning of the year, with high risk of temporary re-escalation with key trading partners as negotiations reach sticking points.”
Inflation is likely to continue losing steam globally except for the U.S., slowing to 2.1% in 2025 and 2% in 2026, from 2.4% in 2024. Weaker demand, currency appreciation and lower oil prices are driving the slowdown in consumer prices.
With lower inflation and slower growth, central banks could be more inclined to reduce interest rates. The U.S. is again an outlier, with the Federal Reserve likely to hold rates steady until March 2026.
The U.S., the euro area and China are likely to increase government spending to support their economies, leading to an increase in public deficits. Germany’s deficit could rise to its highest level since its 1990 unification as the country invests in infrastructure and defense. In the U.S., rising interest costs are also driving up the deficit.
After growing 2.8% in 2024, U.S. economic growth is likely to slow to 1.5% this year and 1% in 2026.
“Immigration restrictions and policy uncertainty add to tariffs’ drag on U.S. growth, and we are skeptical of meaningful support from fiscal policy or deregulation,” says Michael Gapen, Morgan Stanley’s Chief U.S. Economist.
Inflation is likely to accelerate and reach a 2025 peak between 3% and 3.5% in the third quarter as companies pass some of their tariff-related costs through to customers. Additionally, restrictions on immigration could contribute to labor shortages and lead to inflation in services. Consumer prices should begin to slow in 2026 amid weaker demand and lower business spending.
“Tariffs tend to boost inflation before slowing growth, so the Fed will likely worry more about containing inflation than maintaining employment until late this year, when inflation peaks and begins to decline,” Gapen says. “After inflation starts to fall, the labor market should continue to deteriorate. At that point, we think that the Fed will cut rates past neutral and end up with 175 basis points in cuts by the end of 2026.”
In the euro area, the main obstacle to growth is lower exports.
Europe’s economy is likely to expand 1% in 2025 and 0.9% in 2026, after growing 0.8% last year, while inflation should fall below the European Central Bank’s target in the course of 2025 and remain there afterwards.
“Falling inflation, weak growth and a stronger euro make the decisions for the ECB easier,” says Jens Eisenschmidt, Morgan Stanley’s Chief Europe Economist. “We forecast that the ECB will continue its easing cycle, bringing the policy rate below neutral to 1.50% by December 2025.”
In China, government measures to support the economy are unlikely to offset the negative impact of U.S. tariffs. The country also faces deflationary pressures and continuing weakness in its housing sector.
The economy should grow 4.5% in 2025 and 4.2% in 2026, slowing from 5% in 2024. “Some pockets of the economy may outperform with government support, such as certain consumption goods, capital expenditures for urban renewal and technology,” says Morgan Stanley’s Chief China Economist Robin Xing. “However, broader reflation should remain a long and bumpy journey as China addresses its debt and economic imbalance.”
In Japan, the steady rise in base pay and the inflation deceleration are likely to lead to an improvement in real incomes and consumer confidence. These tailwinds for private consumption could help provide an offset to the headwinds from abroad, sustaining economic growth of 1% this year and 0.5% in the next, above 0.2% growth in 2024.
“Within the region, we see India as being best placed given its low goods exports to GDP ratio at the starting point. The country will remain the fastest-growing economy,” says Chetan Ahya, Morgan Stanley’s Chief Asia Economist.★