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Donald Trump’s threatened policies could backfire, the IMF said
The International Monetary Fund (IMF) has upgraded its growth forecast for the UK economy this year, but has also warned about the possible impact of Donald Trump’s economic plans.
The global institution upgraded its prediction for UK growth to 1.6% for this year from its previous estimate of 1.5%.
But it said a threatened wave of tariffs by incoming US president Trump could make trade tensions worse, lower investment, and disrupt supply chains across the world.
The IMF also said although tariffs, tax cuts and deregulation could boost the US economy in the short term, they could ultimately backfire.
The prospect of higher taxes being introduced on imports to the US is concerning many world leaders because they will make it more expensive for companies to sell their goods in the world’s biggest economy.
Tariffs are a central part of Trump’s economic vision – he sees them as a way of growing the US economy, protecting jobs and raising tax revenue – and has threatened to issue tariffs against China, Canada and Mexico on day one of his presidency next week.
He has also said he would impose 100% tariffs on the BRICS bloc of nine nations if they were to create a rival currency to the US dollar.
The IMF said such policies could set the scene for an inflationary boom followed by a bust and could weaken US Treasury bonds as a safe bet.
As well as upgrading its outlook for the UK, the IMF suggested the UK economy would perform better than European economies such as Germany, France and Italy over the next two years.
The improved forecast could be a boost for Chancellor Rachel Reeves, who has faced pressure over her policy decisions this week, after figures showed the economy had flatlined.
Labour has made growth its key objective, but Reeves has admitted the government has to “do more to grow our economy”, in order to boost living standards.
The latest IMF figures suggested the UK economy had weaker growth last year than the organisation had expected.
Responding to the IMF’s report, Reeves highlighted that the UK was the only G7 economy, apart from the US, to have its growth forecast upgraded for 2025.
Forecasts are never perfect given the many factors that affect economic growth – from geopolitics to the weather. But such reports can point in the right direction, especially where they align with other predictions.
The IMF predicted “stable, albeit lacklustre” global growth of 3.3% in both 2025 and 2026, below a historical average of 3.7%.
Its 2025 forecast was largely unchanged from a previous one, mainly because it expects higher US growth than previously predicted to offset lower growth in other major economies.
The imminent arrival of Trump in the White House dominates the section on risks in the IMF’s twice-yearly forecast for the world economy.
When he was last in power, Trump launched into a trade war with China, and US policy led to tit-for-tat tariffs with the EU.
This time round, Trump has proposed a 10% tariff on global imports, a 25% duty on imports from Canada and Mexico, and a 60% tariff on Chinese goods.
It warns that an inflationary US boom could be followed by a possible bust that would potentially “weaken the role of US Treasuries as the global safe asset”.
Investors see US Treasury securities as one of the safest possible bets, because the bonds – which are kind of like an IOU – are backed by the US government.
In addition, if red tape on business is cut too much, this could lead to a runaway dollar that could suck money out of emerging economies, depressing global growth.
Trump going ahead with deportations of illegal immigrants could “permanently reduce potential output” and also raise inflation, The IMF said.
Its chief economist, Pierre-Olivier Gourinchas, said “tremendous uncertainty” about Trump’s future policies was already affecting stock markets around the world.
On Thursday, the World Bank also warned that US tariffs could hit trade and depress global growth this year.
