Global Economy Embarks on Divergent Path Amid Elevated Policy Uncertainty

The International Monetary Fund (IMF) has released its latest World Economic Outlook (WEO), outlining a mixed forecast for the global economy in 2025 and 2026. According to the report, growth is projected at 3.3 percent for both years, lower than the historical average of 3.7 percent over the previous two decades.

In contrast to previous projections, the IMF has maintained its forecast for 2025, mainly due to an upward revision in the United States' economic outlook, which is expected to drive growth. Conversely, other major economies have seen downward revisions, contributing to a more cautious outlook.

Regarding inflation, the IMF predicts it will decline to 4.2 percent in 2025 and 3.5 percent in 2026, marking a convergence with earlier targets in advanced economies but maintaining higher levels overall for emerging market and developing countries.

Sources close to the IMF have warned that medium-term risks to its baseline forecast are leaning towards the downside, driven by heightened policy uncertainty and concerns over disruptions to the ongoing disinflation process. While the short-term outlook sees continued robust growth in the US, other nations face challenges due to elevated policy uncertainty, which could compromise the smooth transition from expansionary to expansion-constrained monetary policies.

The financial community is urging policymakers to adopt a proactive stance when managing these risks by striking a balance between inflationary and growth-oriented policies. It emphasizes the need for structural reforms and strengthened multilateral cooperation in order to bolster economic prospects across medium-term projections, all while safeguarding fiscal sustainability and stability.

As such, investors are advised to be highly vigilant of ongoing global shifts, navigating complex headwinds driven by divergent national paths under elevated policy uncertainty.