WASHINGTON — The International Monetary Fund projects global economic growth will decelerate to 3.1% in 2026, down from 3.2% in 2025, as protectionist policies and trade uncertainty continue to weigh on the world economy, according to the organization's latest World Economic Outlook released in October 2025.

The forecast represents a cumulative downgrade from projections made before major policy shifts in early 2025, when sweeping tariff announcements rattled global markets and triggered widespread economic uncertainty.

Trade Tensions Cast Long Shadow

The IMF attributes the subdued growth outlook primarily to heightened protectionism and ongoing trade fragmentation. Chief Economist Pierre-Olivier Gourinchas emphasized that while the global economy has shown resilience in adapting to various shocks, medium-term prospects remain dim.

Trade tensions are exacting a measurable toll on global output. The IMF notes that current projections remain roughly 0.2 percentage points below forecasts made before April 2025, when the United States announced comprehensive tariff measures affecting nearly 60 countries. Though subsequent negotiations led to tariff reductions and temporary pauses, uncertainty continues to suppress investment and consumption worldwide.

The organization warns that a complete breakdown in trade negotiations or renewed protectionism could dampen growth globally while fueling inflation in multiple countries. According to IMF analysis, further tariff escalation combined with supply chain disruptions could reduce global output by an additional 0.3% in 2026.

Advanced and Emerging Economies Face Different Challenges

Advanced economies are projected to grow at 1.6% in both 2025 and 2026, with notable divergences among major nations. The United States economy, while showing relative strength, faces headwinds from trade policy uncertainty and tighter immigration controls. Growth projections for the eurozone remain modest, with structural challenges continuing to constrain expansion.

Emerging market and developing economies are expected to see growth moderate from 4.3% in 2024 to 4.2% in 2025 and 4.0% in 2026. China's economy faces a particularly complex outlook, with growth projected at 4.8% in 2025 before slowing to 4.2% in 2026. The world's second-largest economy is contending with structural headwinds including an aging population, property market weakness, and external tariff pressures.

Latin America and the Caribbean saw upward revisions following stronger-than-expected economic data and lower tariff rates, with Mexico's 2025 forecast upgraded significantly. Meanwhile, growth in the Middle East and Central Asia is projected to recover as effects from oil production disruptions and regional conflicts begin to abate.

Inflation Trends Offer Mixed Picture

Global inflation is expected to continue its decline, reaching 4.2% in 2025 and 3.6% in 2026, according to IMF projections. This downward trajectory creates space for continued monetary policy normalization across major central banks.

However, the inflation outlook varies significantly by region. The United States faces above-target inflation with risks tilted to the upside, while much of the rest of the world experiences more subdued price pressures. The IMF warns that tariffs could eventually pass through to consumer prices more substantially than initially observed, potentially reigniting inflationary pressures.

Downside Risks Dominate Outlook

The IMF identifies multiple significant risks tilting toward negative outcomes. Persistent policy uncertainty could continue dampening consumption and investment decisions as businesses and households adopt wait-and-see approaches. Further escalation of protectionist measures, including non-tariff barriers, threatens to disrupt supply chains and stifle productivity growth.

Financial vulnerabilities present another concern. Mounting fiscal challenges from lower growth prospects, higher real interest rates, elevated debt levels, and increased spending needs on defense and national security are heightening vulnerability to external shocks across numerous countries.

The organization also highlights risks to central bank independence, warning that growing political pressures could undermine decades of hard-won credibility in monetary policymaking. Maintaining trust in central banks' ability to ensure price stability remains crucial for keeping inflation expectations anchored.

An abrupt repricing of technology stocks represents another potential shock. The surge in artificial intelligence investment has driven significant market gains, but disappointing results on earnings and productivity improvements could trigger broader implications for macrofinancial stability.

Potential Upside Scenarios

Despite predominantly downside risks, the IMF notes several developments that could brighten the outlook. Resolution of trade policy uncertainty through clearer bilateral and multilateral agreements could raise global output by 0.4% in the near term. A return to pre-2025 tariff levels would add another 0.3% boost to global growth.

Advances in artificial intelligence technology could improve total factor productivity beyond their current investment effects. Under conservative assumptions, the combined effects of lower uncertainty, reduced tariffs, and AI productivity gains could raise global output by approximately 1% in the near term.

Policy Recommendations

The IMF urges policymakers to prioritize reducing policy uncertainty, particularly regarding trade. The organization emphasizes the need for clear, transparent, and predictable rules that reflect the changing nature of trade relations and seek to deepen trade ties where possible.

Gourinchas stressed that many countries need to address fiscal vulnerabilities and rebuild fiscal buffers despite facing increased spending needs. Central banks must maintain both price and financial stability while preserving their institutional independence. Exchange rate flexibility remains essential, though some tailored interventions may be appropriate in certain circumstances.

Structural reforms that ease policy tradeoffs and support long-term growth remain critical to prosperity. The IMF notes that countries turning inward through protectionist measures rarely improve their domestic prospects durably, leaving all nations potentially worse off.

Global Trade Patterns Shifting

World trade volume is forecast to grow at an average rate of 2.9% in 2025-2026, boosted by front-loading activities in 2025 but still slower than the 3.5% growth rate achieved in 2024. Persistent trade fragmentation continues limiting potential gains.

Significant shifts in trade patterns are occurring along geopolitical lines, particularly since Russia's invasion of Ukraine in February 2022. Trade between rival geopolitical blocs has slowed more substantially than trade within blocs, suggesting deeper economic fragmentation.

The IMF notes that while front-loading of imports and agile supply chain adjustments initially cushioned the impact of tariff announcements, these temporary factors are now unwinding. As businesses and consumers exhaust their buffers, underlying weaknesses in demand and investment are becoming more apparent.

The global economy finds itself navigating a challenging landscape marked by heightened protectionism, geopolitical tensions, and structural economic shifts. While growth continues, the pace remains well below the historical average of 3.7% observed between 2000 and 2019.

The IMF emphasizes that the current environment demands careful policy calibration. Governments must balance multiple objectives including fiscal sustainability, price stability, and long-term growth promotion while avoiding unilateral measures that could trigger retaliatory actions and further fragment the global trading system.

As the world adjusts to this new economic landscape, the path forward requires international cooperation, policy predictability, and structural reforms that enhance productivity and economic resilience. The alternative—continued fragmentation and protectionism—risks cementing a prolonged period of subpar global growth with significant implications for living standards and economic opportunity worldwide.