IMF Photo: VCG

The International Monetary Fund (IMF) on Tuesday lifted its forecast for China in 2025 to 4.8 percent, up 0.8 percentage point compared to its forecast in April, according to an update to its World Economic Outlook (WEO).

"This revision reflects stronger-than-expected activity in the first half of 2025 and the significant reduction in US-China tariffs. The GDP outturn in the first quarter of 2025 alone implies a mechanical upgrade to the growth rate for the year of 0.6 percentage point. A recovery in inventory accumulation is expected to partly offset payback from front-loading in the second half of 2025," the WEO said.

China's real GDP growth, at an annualized rate of 6 percent, exceeded expectations. This was mainly driven by exports, propped up by a depreciating yuan closely tracking the dollar and with declining sales to the US more than offset by strong sales to the rest of the world, and, to a smaller extent, by consumption, supported by fiscal measures, the WEO noted.

China's GDP growth in 2026 is also revised upward by 0.2 percentage point to 4.2 percent, it said.

In comparison, global growth is projected at 3 percent for 2025 and 3.1 percent in 2026. The forecast for 2025 is 0.2 percentage point higher than that in the reference forecast of the April 2025 WEO and 0.1 percentage point higher for 2026. This reflects stronger-than-expected front-loading in anticipation of higher tariffs.

The global economy has continued to hold steady, but the composition of activity points to distortions from tariffs, rather than underlying robustness, said the WEO. Resetting tariff rates to the levels of April 2 or higher (as mentioned in the US administration's letters to trade partners) on August 1 and implementing tariffs as high as 50 percent on copper as currently pronounced would dampen global growth. 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, it warned.

Countries should reduce policy-induced uncertainty by promoting clear and transparent trade frameworks. Pragmatic cooperation is paramount in instances in which some rules of the international trading system, in their current form, may not be functioning as intended. This entails the pursuit of multilateral initiatives on the global commons and modernizing trade rules where feasible while seeking plurilateral or regional solutions on other matters, the WEO said.

Meanwhile, bilateral negotiations can help defuse trade tensions and should aim to reduce trade and investment barriers while not increasing them toward third parties, which could escalate tensions with other trading partners, the IMF noted.

Adopting a pragmatic cooperative approach to these policies could reduce negative spillovers among trading partners. More generally, international cooperation across various policy areas, including trade, industrial policies, and taxation, can mitigate cross-country spillovers and support vulnerable economies, it said.

Global Times