Surging US imports and lower tariffs to lift global growth, IMF predicts
This is higher than the respective 2.8% and 3% forecast in the previous report in April.
UK gross domestic product (GDP) is predicted to be 1.2% this year, and 1.4% in 2026, unchanged from revised forecasts set out in May.
The upgrade to the world outlook reflects factors including a strong degree of trade 'front-loading' in recent months – referring to a rush of imports into the US.
This has happened as businesses and households tried to get ahead of planned increases to US tariff rates, following Mr Trump's 'liberation day' announcements in April, according to the report.
The IMF said front-loading had 'shaped economic activity in the first half of the year', adding that it was 'creating exposures that could amplify the impact of any potential negative shocks'.
For example, firms could end up having too much stock, therefore pushing down future imports, or it could lead to additional holding costs or the risk of items becoming obsolete.
Meanwhile, the growth upgrade since April was also driven by US tariffs being lowered since higher rates were first announced by Mr Trump, alongside improved conditions in the financial markets.
This came after the US struck new trade deals, including with the UK and, most recently, the EU.
The introduction of some higher tariff rates have also been paused until August, notably between China and the US, helping diffuse escalating trade tensions and open the door to negotiations.
However, the IMF warned that a 'rebound in effective tariff rates could lead to weaker growth' and weigh on wider sentiment.
'Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements,' the report said.
Furthermore, the IMF flagged conflict in the Middle East creating potential risks to global shipping and trade, which could further raise commodity prices like oil.
On the other hand, the report found that global growth could be lifted if trade negotiations lead to lower tariffs, ease tensions, and create more certainty and predictability.
The IMF also highlighted technological advancements, including the use of artificial intelligence (AI), as a way to further boost growth around the world.
Chancellor Rachel Reeves said: 'The IMF's forecasts show that the UK remains the fastest growing European economy in the G7 despite the global economic challenges we are facing.
'However, I am determined to unlock Britain's full potential, which is why we are investing billions of pounds through our plan for change – in jobs through better city region transport, record funding for affordable homes, as well as backing major projects like Sizewell C to drive economic growth and put more money into people's pockets.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Independent
15 minutes ago
- The Independent
Rachel Reeves won't thank Gordon Brown for his tax advice
When he appeared on the BBC this morning, former prime minister Gordon Brown said he was 'not here to second-guess Rachel Reeves's economic policy', adding: 'I don't want to be a back-seat driver.' If the chancellor was listening, I suspect her response would have been hollow laughter. For someone who didn't want to be a backseat driver, he was giving some pretty detailed directions to a different destination. Brown protested that he was trying to help by 'proposing measures that are within the manifesto and that don't break the fiscal rules', but it was the kind of help offered by a self-righteous relative who gets in the way and breaks things. He advocated raising the tax on online gambling by £3bn a year, which could be a useful contribution to the £30bn-to-£50bn gap that has opened up between annual revenue and spending by the end of this parliament. Except that he was suggesting spending the money on something else – paying benefits to families with three or more children. So his plan would do nothing to help solve the immediate problem in the forthcoming Budget, while highlighting another unmet need, and implying that Reeves is responsible for perpetuating 'a national scandal and a stain on our country's soul'. Of course, he blamed the Conservatives – 'these are austerity's children, the victims of 14 years of Tory rule' – but the sting is in the implied rebuke to a Labour government that fails to do anything about it. In this, he is aligning himself with the so-called soft left in the Parliamentary Labour Party – those MPs who blocked the attempt to restrain the growth in the disability benefits bill at a cost to the Exchequer of £5bn a year. Those MPs also want to lift the two-child limit on benefits. For many of them, their rebellion was driven by something fundamental: they want their government to do 'Labour' things, namely spending more on reducing poverty for children, the disabled and the elderly. Brown's intervention, in effect, tells them that they are right – and implies that the moral case for higher spending outweighs the need for fiscal responsibility. It is worse than that, because he pretended to be fiscally responsible, by saying how the extra spending that he wants could be paid for – but when he was asked how Reeves should fill the gap that she has to fill before she can even start to think about additional spending, he said it is 'not wise to give a running commentary'. And it is worse still, because in his interview on BBC Radio 4's Today programme, Brown suggested that an accounting trick on defence spending would 'create the kind of headroom Rachel Reeves needs'. He proposed issuing bonds for defence spending of one per cent of GDP, and said it 'should be regarded as something extraordinary and exceptional outside the fiscal rules'. Can you imagine what he would have said about such an idea when he was chancellor? You do not have to imagine it: when Ken Livingstone, the mayor of London, proposed a bond issue to finance the modernisation of the Underground in 1999, Brown dismissed it, saying: 'People would be worse off, the investment would not take place, and the Underground would be less safe as a result of that.' Defence bonds would be trying to do the same thing, to take extra borrowing 'off the books' and fool the markets into thinking it doesn't count. If Brown wanted to be helpful, he could prepare the ground for the inevitable tax rises in the Budget. He could explain to Labour MPs that Reeves has to start by filling the gap that already exists before she can consider any additional spending, however morally desirable. He could help by explaining that Reeves's new 'black hole' is still a legacy of the fiscal irresponsibility of the Tory years, and still part of the long hangover from the coronavirus lockdowns. She hoped that she wouldn't have to come back for more taxes, but there was always a chance that she would, and that her inheritance would turn out to be more toxic than expected. He could make the case for a big, bold measure to rebalance the public finances fairly, in addition to a number of small tax rises such as on gambling. He could argue – as The Independent has done – for a rise in income tax, and say that Labour's manifesto promises have been overtaken by 'extraordinary and exceptional' circumstances. I don't know if Reeves would have been grateful for that either, but at least it would have made the point to Labour MPs that, admirable though their compassion might be, it has to be paid for. There are no short cuts.
Reuters
an hour ago
- Reuters
US jobless claims edge up; productivity improves in second quarter
Aug 7 (Reuters) - The number of Americans filing new applications for unemployment benefits ticked up to the highest level in a month last week, suggesting the labor market was largely stable even though job creation is weakening and it is taking laid-off workers longer to find new jobs. Initial claims for state unemployment benefits for the week ended August 2 rose 7,000 to a seasonally adjusted 226,000, the highest level since the week ended July 5, the Labor Department said on Thursday. Economists polled by Reuters had forecast 221,000 claims for the latest week. The labor market has slowed, with government data last week showing far fewer jobs were created in July than economists had expected as uncertainty over President Donald Trump's tariffs left businesses wary of adding workers. Moreover, employment gains in the previous two months were revised lower by nearly 260,000, a stunning reversal that prompted Trump to fire the head of the Bureau of Labor Statistics - a move that rattled investors and economists already anxious about the eroding quality of official U.S. economic data. The latest data on new claims indicates employers are not yet turning to large-scale layoffs as the economy loses steam but are managing through attrition. That has helped keep the unemployment rate, at 4.2% in July, relatively low even while job growth has slowed. Declining labor supply amid the White House's immigration crackdown is also helping to stave off a jump in the jobless rate. Employers' hesitancy to increase hiring means there are fewer jobs for those being laid off. The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose to a seasonally adjusted 1.974 million during the week ending July 26, the claims report showed. That was the highest level of so-called continued claims since November 2021, and the the increase of 38,000 from the previous week was the largest since late May. Meanwhile, the Labor Department also said worker productivity rebounded more than expected in the second quarter, easing a surge in labor costs at the start of the year. Nonfarm business sector productivity increased 2.4% in the April-June period after declining by 1.8% in the first three months of the year, the BLS reported. Economists polled by Reuters had expected productivity to rise by 2.0%. Worker output increased by 3.7%, the largest improvement since the third quarter of 2023, while unit labor cost growth moderated to 1.6% from an upwardly revised 6.9% in the first quarter.
Reuters
an hour ago
- Reuters
Russia's seven-month budget deficit exceeds annual target
MOSCOW, Aug 7 (Reuters) - Russia's seven-month budget deficit exceeded the target for the entire year by a quarter, Finance Ministry data showed on Thursday, highlighting the strain of financing the war in Ukraine. U.S. President Donald Trump, who is expected to meet Russian President Vladimir Putin in the coming days, said this week that the Russian economy "stinks", and that declining energy prices could pressure Putin to halt the war. The data showed that from January to August this year, Russia ran a budget deficit of 4.9 trillion roubles ($61.44 billion), or 2.2% of gross domestic product. Russia targets a deficit of 1.7% of GDP this year, having tripled it in May, citing falling oil prices and Trump's tariff wars as the main reasons. Last month, the deficit was in line with this target. The ministry reported that expenditures from January to July amounted to 25.19 trillion roubles, an increase of 20.8% compared to the same period last year. Meanwhile, revenues increased by only 2.8% year-on-year to 20.32 trillion roubles. "This is mainly due to the advanced financing of expenses in January of the current year, as well as a decrease in oil and gas revenue inflows," the ministry said, emphasizing that the current figure will not affect the annual target. Russia has been increasing fiscal spending throughout its three and a half years of war in Ukraine to finance the military effort. The Vedomosti business daily cited an unnamed Finance Ministry spokesman this week as saying that the ministry is planning another revision of this year's budget in the autumn. It did not provide any details of the planned revision. The daily also cited Dmitry Gusev, deputy head of the parliament's budget committee, as saying that increased spending was the main reason for the revision. Gusev also mentioned that non-energy revenues were affected by lower investment. The budget's oil and gas revenues - its most important source of cash, slated to account for about 22% of total revenues this year - fell by 27% in July due to lower prices and the strong rouble. Potential new sanctions, flagged by Trump in case Russia does not show any progress towards peace in Ukraine, added pressure on the economy, although the nature of new measures is not yet clear. However, Russia recorded a third consecutive week of deflation on August 6, increasing the possibility of another key rate cut by the central bank in September. A further cut could potentially boost Russia's flagging economic growth. ($1 = 79.7500 roubles)
