IMF Raises 2026 Global Growth Forecast to 3.1% on Weakening Dollar, Lower Tariffs

The International Monetary Fund (IMF) has raised its global economic growth projections for 2026 to 3.1%, up from the previous forecast of 3.0%. Similarly, the growth projection for 2025 has been revised from 2.8% to 3.0%. This upward adjustment is primarily attributed to the weakening of the U.S. dollar and the lower-than-expected effective tariff rates in the United States, which have collectively provided a buffer for the global economy.

The IMF's latest World Economic Outlook report, released on July 29, highlights that the weaker U.S. dollar has eased the global financial environment by reducing the debt repayment costs for many emerging markets and foreign companies that have dollar-denominated debt. Additionally, the effective tariff rate in the U.S. has been revised downwards to approximately 17%, significantly lower than the 24% anticipated in April. This reduction in tariff pressure has contributed to the improved economic outlook.

However, the IMF cautions that the recovery remains fragile. The report emphasizes that global economic growth is still below the pre-pandemic average of 3.7%, and the outlook is tilted towards downside risks. Uncertainty in trade policies, potential increases in tariff rates, and geopolitical tensions could all have severe negative impacts on economic activity. The IMF's chief economist noted that the current recovery is characterized by a "thin resilience," and any negative shocks could have amplified effects due to the inventory stockpiling behavior observed in response to anticipated tariff increases.

The IMF's revised projections are based on multiple factors, including the preemptive import behavior driven by tariff expectations, the lower-than-anticipated effective tariff rate in the U.S., and the weakening of the U.S. dollar, which has improved global financial conditions. Additionally, several major economies have implemented fiscal expansion policies, further boosting economic activity. The report also highlights the potential for trade negotiations to reach a predictable framework, which could further stimulate global economic growth.

Despite the positive outlook, the IMF warns of significant downside risks. These include the possibility of a rebound in effective tariff rates, increased uncertainty, geopolitical tensions, and rising fiscal deficits, which could tighten global financial conditions and push up long-term interest rates. The IMF emphasizes the importance of practical cooperation among economies to mitigate trade tensions and reduce barriers to trade and investment, fostering a more stable and predictable trade environment.

The IMF's revised projections underscore the significance of a weaker U.S. dollar in creating a more favorable financial environment, which has contributed to the improved economic outlook for both developed and emerging economies. The report also notes that the potential for trade negotiations to reach a predictable framework could further stimulate global economic growth. However, the IMF cautions that downside risks remain, and practical cooperation among economies is essential to mitigate trade tensions and reduce barriers to trade and investment.