World Economic Outlook Growth Projections 2025-2026

 

The International Monetary Fund (IMF) has just released its October 2025 World Economic Outlook — and the message is clear: while the near-term picture has improved slightly, global growth remains subdued as economies adjust to a complex mix of slowing trade, high borrowing costs, and uneven recovery across regions.

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Key Highlights & Findings

Growth & Inflation Outlook

  • The world economy is seen as being in flux, with prospects “dim.”
  • Global growth is projected at 3.2 % in 2025, down from 3.3 % in 2024, and slowing further to 3.1 % in 2026.
  • Advanced economies are forecast to grow by about 1.5 %, while emerging market and developing economies will see just over 4 % growth.
  • Inflation is expected to gradually decline in many countries, though it will remain above target in the U.S., with upside risks.

Risks & Vulnerabilities

  • The balance of risks is strongly tilted to the downside.
  • Threats include:
    • Rising protectionism and trade fragmentation
    • Policy uncertainty and political instability
    • Fiscal vulnerabilities and high public debt
    • Financial market corrections, especially if risk premia widen
    • Labor supply shocks, especially in aging or low-growth economies
    • Erosion of institutional credibility (e.g. loss of central bank independence)

Emerging Markets & Resilience

  • Some emerging markets have held up better than expected — due partly to “good luck” in external conditions, but also improved policy frameworks.
  • Countries with strong institutional and policy frameworks are in a better position to absorb shocks.
  • In weaker economies, delayed monetary tightening or overdependence on foreign exchange interventions may lead to inflation de-anchoring and higher output losses.

Industrial Policy & Trade-Offs

  • Chapter 3 evaluates how industrial policy is increasingly being used to build resilience and reduce import dependence.
  • But such policies carry trade-offs: potential distortions, fiscal costs, and inefficient resource allocation.
  • Their success depends heavily on targeting, institutions, structural reforms, and complementarity with macroeconomic policy.

Policy Recommendations

  • Restore confidence through credible, transparent, and sustainable policies.
  • Couple trade diplomacy with macroeconomic adjustment.
  • Rebuild fiscal buffers and avoid overreliance on debt.
  • Safeguard central bank independence and sound institutional frameworks.
  • Emphasize structural reforms, especially in weaker economies, to improve resilience.