The World Economic Outlook update was published by the International Monetary Fund (IMF) on January 19, 2025 and was titled “Global Economy: Steady amid Divergent Forces”.
Let’s delve into its main points and see what it has to say.
Global Growth Outlook
Global growth is estimated at 3.3 percent for 2026 and 3.2 percent for 2027. The forecast is revised upwards from the October 2025 World Economic Outlook.
Despite changes in trade policies, technology investment, fiscal and monetary support, accommodative financial conditions, and private sector adaptability have helped mitigate the negative impacts.
Global headline inflation is expected to decrease from an estimated 4.1 percent in 2025 to 3.8 percent in 2026 and to 3.4 percent in 2027. The estimation remains unchanged from October and envisions inflation returning to target more steadily in the United States than in other large economies.
Advanced Economies
The United States is estimated to grow by 2.4% in 2026, an upward revision of 0.3 percent than the October forecast, due to fiscal stimulus and relaxed monetary policy, but this growth is expected to slow down to 2.0 percent in 2027.
In contrast, the Euro Area is expected to grow at at 1.3 percent in 2026, and is set to rise to 1.4 percent in 2027. The forecast is broadly unchanged from that in October, with slow growth due to ongoing structural challenges.
Japan is expected to have a moderate growth of 1.1 percent in 2025, to 0.7 percent in 0.7 percent in 2026, and to 0.6 percent in 2027. This is an upward revision from that of October, which reflects the fiscal stimulus package announced by the new government.
Emerging Markets and Developing Economies (EMDEs)
Emerging and developing economies are expected to grow by 4.0 percent in 2026 and 2027, remaining the main drivers of global expansion.
China is sustaining growth through exports despite weak consumption and is expected to grow at 5 percent in 2025. The upward revision of 0.2 percentage points from the October update is due to government stimulus measures and additional policy bank lending for investment.
The growth for 2026 is also revised upwards by 0.3 percentage points to 4.5 percent. However, the economy’s growth rate is likely to decline to 4.0 percent in 2027 as structural challenges have become evident.
While opportunities are clear, risks from debt, geopolitics, and climate shocks leave these economies exposed to volatility.
Global Inflation
Global headline inflation is expected to decline to 3.8 percent in 2026 and 3.4 percent in 2027, with advanced economies reaching target levels before emerging market and developing economies.
The forecasts are unchanged from those of the October WEO, which This is due to softening demand, even as lower energy prices remain intact.
Medium-term Risks
The medium-term risks to the baseline economic outlook are leaning towards the downside. In the near term, there are divergent risks with potential upside risks in the United States but downside risks in other countries due to policy uncertainty.
Policy disruptions could impact the ongoing disinflation process and the shift towards easing monetary policy, affecting fiscal sustainability and financial stability. To manage these risks, policymakers need to focus on balancing trade-offs between inflation and real activity, rebuilding buffers, and improving medium-term growth prospects through structural reforms and stronger international cooperation.
Policy for Stability, Discipline and Inclusion
Monetary policy must carefully balance the potential impact of the tech boom on interest rates. If the tech boom continues, it could lead to higher real neutral interest rates, similar to what happened during the dot-com era. This would require a tightening of monetary policy, which could limit fiscal space, especially for countries not benefiting from growth in Artificial Intelligence.
On the fiscal policy side, the government should reduce public debt and restore the fiscal space required.
The impact of AI on workers is uneven, as it can displace jobs and lower wages for certain segments of the workforce. To address this issue, policies should focus on lowering barriers to AI adoption, helping workers acquire the necessary skills, supporting job mobility, and maintaining competitive markets to ensure that the benefits of innovation are broadly shared.
Balancing Act
Global growth has remained strong despite trade disruptions, but there are underlying vulnerabilities due to heavy investment in the tech sector. The negative impact of trade disruptions is expected to increase over time. While AI-driven investment has the potential for transformation, it also brings financial and structural risks that need to be monitored closely.
Policymakers and investors need to balance optimism with caution to ensure that the current tech boom leads to sustainable and inclusive growth, rather than a boom-bust cycle. This is crucial in a challenging environment marked by geopolitical tensions and threats to institutional frameworks.
Indian Economy in the report
India is predicted to have strong economic growth in the coming years, with the IMF estimating a growth rate of 7.3 percent for 2025-26 and 6.4 percent for 2026 and 2027. This makes India the fastest-growing major economy.
Inflation in India is anticipated to return to near target levels following a significant drop in 2025 due to lower food prices.
Conclusion
The report highlights global economic fragility, yet sees resilience. Growth is expected to be moderate, with downside risks.
India, however, appears to be doing well so far, despite ongoing economic divergences.
Inflation is a broad economic issue shaped by demand, supply, global shocks, and policy decisions. While monetary policy addresses short‑term inflation dynamics, fiscal consolidation addresses long‑term stability.
The IMF framing often underplays how these two policies complement each other — monetary policy anchors expectations in the near term, while fiscal discipline prevents undermining resilience. Without this integrated perspective, the outlook risks appearing optimistic yet incomplete.
