MNI: IMF Lifts US, China Growth On Lighter Tariffs, Fiscal Aid

The International Monetary Fund on Tuesday boosted U.S. and China growth forecasts, citing a de-escalation of tariffs and increased fiscal stimulus while warning global growth is at risk because of trade disputes. 

America's growth estimate moved up a tenth to 1.9% this year and 0.3pp next year to 2% in the July World Economic Outlook update from the last projection in April. Donald Trump's recent fiscal package will raise annual growth 0.5pp on average through 2030, though the report warned investors may react badly to an unsustainable fiscal path. 

The agreement temporarily lowering US tariffs on China and fiscal stimulus boosts growth in the world's second-largest economy this year by 0.8pp to 4.8%. Growth in 2026 in the IMF projection is also revised up 0.2pp to 4.2%, reflecting lower effective tariffs. 

Global prospects have improved slightly in recent months in spite of the U.S.-led trade war and the IMF said risks remain tilted to the downside. "The global economy has continued to hold steady, but the composition of activity points to distortions from tariffs, rather than underlying robustness," the IMF report said. 

First-quarter growth was boosted by stockpiling before tariffs took effect and that may unwind when second-quarter figures come in, the IMF said. That helped increase 2025 growth 0.2pp to 3% this year, and by 0.1pp to 3.1% in 2026. Growth lags the pre-pandemic average of 3.7%.

"The tariffs, acting as a supply shock, are expected to pass through to US consumer prices gradually and hit inflation in the second half of 2025," according to the report. "Inflation is projected to remain above the 2% target through 2026 in the US, whereas in the euro area inflationary dynamics are expected to be more subdued, in part on account of currency appreciation and one-off fiscal measures."

"Monetary policy rates in the UK and the US are expected to decline in the second half of 2025, though at varying speeds, whereas the IMF staff expects the policy rate in the euro area to remain unchanged and that in Japan to rise gradually. Fiscal stimulus is anticipated in major economies in the near term, including China, Germany, and the US. In the US, the (fiscal law) is expected to increase the fiscal deficit by about 1.5pp of GDP in 2026, with tariff revenues offsetting about half of this increase."