IMF Warns of Dim Global Economic Outlook

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00:00Global trade developments continue to shape the outlook, but other drivers are increasingly

00:06coming into the picture.

00:08In April, the U.S. shook global trade norms by announcing sweeping tariffs.

00:13Our April report offered a range of estimates for the resulting growth downgrade, from modest

00:19to significant.

00:21Six months on, where are we?

00:23The good news is that the growth downgrade is at the modest end of the range, with growth

00:28projected at 3.2% this year and 3.1% next year, while inflation has increased modestly and

00:35is proving more persistent.

00:37Now, what explains this modest impact?

00:41First and foremost, the tariff shock itself is smaller than initially feared, with many

00:46trade deals and exemptions.

00:49Most countries also refrained from retaliation, keeping the trading system open, and the private

00:54sector proved agile, front-loading imports and rerouting supply chains.

00:59Second, financial conditions remain loose, in part because of a weaker dollar.

01:04In some countries, such as Germany and China, fiscal policy turned expansionary.

01:09And in the U.S., an AI and tech-driven investment is booming.

01:14Yet, despite all these offsets, the tariff shock is here, and it is further dimming already weak

01:21growth prospects.

01:22This is clear even in the U.S.

01:24Growth is revised down from last year, the labor market is weakening, and inflation has

01:29been revised up, and is persistently above target, signs that the economy has been hit

01:34by a negative supply shock.

01:37Where do we go from here?

01:38The outlook remains fragile and very sensitive to news on the trade front, as I'm sure all

01:43of us have noted.

01:44Flaring up trade tensions with the potential for supply chain disruptions could quickly lower

01:50global output by as much as 0.3 percentage point as we explore in our downside scenario.