IMF keeps SA growth forecast unchanged but increases global growth forecast

The International Monetary Fund (IMF) has kept South Africa’s growth forecast unchanged at 1% for 2025, but increased its global growth forecast to 3% for this year. Although it is more optimistic about economic growth, the IMF has warned that US tariffs could be higher than expected.

South Africa’s growth is forecast to increase to 1.3% in 2026, while the global growth forecast to 3% increased from 2.8% in the April forecast, with the 2026 forecast at 3.1%.

Presenting the IMF’s latest World Economic Outlook Update, Pierre-Olivier Gourinchas, economic counsellor and director of the research department at the IMF, said global trade developments continue to shape the global economic outlook.

“After an unprecedented escalation in tariffs imposed on the rest of the world in April, the US partly reversed course, pausing the higher tariffs for most of its trading partners. This and a de-escalation of trade tensions with China in May, modestly reduced the US effective tariff rate from 24% to about 17%.

“Despite these welcome developments, tariffs remain historically high and global policy remains highly uncertain, with only a few countries reaching fully fleshed out trade agreements. This modest decline in trade tensions, however fragile, contributed to the resilience of the global economy so far.”

ALSO READ: IMF cuts SA’s economic growth projection – again

This also helped global growth forecast, IMF says

Gourinchas pointed out that these developments also helped:

• Concerns about future tariffs led to a strong surge in exports to the US in the first quarter of the year. This front-loading helped support activity in Europe and Asia.
• Financial conditions improved and monetary conditions eased as global inflation continues to recede, largely unchanged from the IMF’s previous projections.
• The dollar depreciated by roughly 8% since January. “As we already pointed out in April, the effect of tariffs on exchange rates can be complex. Previously, the tariffing country saw its currency appreciate, buffering the impact of the tariffs. However, this time around, the dollar depreciation amplified the impact of the tariff shock on other countries’ competitiveness. With a stable value relative to the US dollar, the Chinese RMB tracked the dollar while the euro appreciated significantly.

“Accordingly, we revised our growth projections upwards from the April 2025 reference forecast, from 2.8% to 3.0% this year and from 3.0% to 3.1% next year.”

He said most regions are experiencing modest growth upgrades this year as well as next year, but warned that while this resilience is welcome, it is also tenuous.

“While the trade shock could turn out to be less severe than initially feared, it is still sizeable and evidence is mounting that it is hurting the global economy. For instance, compared to our pre-April forecast, global growth is revised downwards by 0.2 percentage points this year. At around 3%, global growth remains disappointingly below the pre-Covid average.”

ALSO READ: G20 finance officials say downside risks dominate global economic outlook – IMF

IMF also forecasts persistent decline in global trade due to US tariffs

The IMF also continues to project a persistent decline in global trade as a share of output despite the recent front-loading, from 57% in 2024 to 53% in 2030. Gourinchas says risks to the global economy remain firmly to the downside, while the current trade environment remains precarious.

“Tariffs could well reset at much higher levels once the ‘pause’ expires on 1 August or if existing deals unravel. If this were the case, model-based simulations suggest global output would be 0.3% lower in 2026.

“Without comprehensive agreements, the ongoing trade uncertainty could increasingly weigh on investment and activity. In addition, while exports front-loading supported global activity so far, firms could become vulnerable if the demand for stockpiled goods does not materialise.”

Gourinchas points out that the geopolitical environment also remains fragile, with a potential for more negative supply disruptions. “While global inflation continues to decline, the latest price data suggests that inflation pressures are building gradually in the US.

“Overall, US import prices in dollars remained largely unchanged or even increased this year, suggesting that the cost of tariffs will be borne by US retailers, and eventually customers, as firms start to pass through higher costs into their prices.”

He says in too many countries, the combination of high public debt and still elevated public deficits continue to be a cause for concern. “The lack of fiscal space makes these countries especially vulnerable to a sudden tightening in financial conditions that increase term premia.

“Such tightening becomes even more likely if central bank independence, a cornerstone of macroeconomic, monetary and financial stability, is undermined.”

ALSO READ: IMF’s bad news about economic growth for SA, thanks to Trump tariffs

IMF key priorities to restore stability in trade policy

The IMF also continues to call for prudence and the need for improved collaboration. Gourinchas says some key priorities are:

• First and foremostly, restoring stability in trade policy is essential to reduce policy uncertainty. “We urge all parties to settle trade disputes and agree on clear and predictable frameworks. Collective efforts should be made to restore and improve the global trading system.”
• The need for predictable and stable rules extends to other areas of policymaking. “It is important to reaffirm and preserve the principle of central bank independence. The evidence is overwhelming that independent central banks, with a narrow mandate to pursue price and economic stability, are essential to anchoring inflation expectations. That central banks around the world achieved a successful ‘soft landing’ despite the recent surge in inflation owes a great deal to their independence and hard-earned credibility.”
• Restoring fiscal space remains a priority for many countries. “Even where new spending needs are emerging, efforts must be made to implement gradual and credible consolidation while protecting growth.”
• Lastly, as global growth remains tepid, more efforts must be made to increase long-term productivity through structural reforms.