IMF upgrades projections for China's growth

Latest World Economic Outlook raises forecast but warns of potential tariffs

The International Monetary Fund has revised China's growth projections up to 4.6 percent for 2025 and to 4.5 percent for 2026, citing last year's performance and an expected rise in economic activity after an anticipated easing of global trade policy uncertainty.

In its latest World Economic Outlook update released on Friday, the IMF also warned of potential new waves of tariffs, which it says impair growth in both the near and medium term across economies "at varying degrees".

For China's growth this year, the IMF revised the rate upward by 0.1 percentage point from its October forecast.

"This revision reflects carryover from 2024 and the fiscal package announced in November largely offsetting the negative effect on investment from heightened trade policy uncertainty and property market drag," the IMF said in its release.

In 2024, China's gross domestic product grew by 5 percent year-on-year, China's National Bureau of Statistics announced on Friday.

Pierre-Olivier Gourinchas, chief economist and director of the IMF's Research Department, said the elevated trade and policy uncertainty is contributing to "anemic" demand in many countries, but economic activity is likely to pick up as this uncertainty recedes.

"This includes China, where we now project 4.5 percent growth next year, up 0.4 percentage point from our prior forecast," Gourinchas said in a blog published at the launch of the January outlook update.

The IMF projects China's 2026 growth to mostly remain stable at that rate, as the effects of trade-policy uncertainty dissipate and the retirement-age increase slows down the decline in the labor supply.

In preparing the quarterly update, IMF staff incorporated recent market developments and the impact of heightened trade policy uncertainty, which is assumed to be temporary, with the effects unwinding after about a year, according to the report.

Globally, growth is projected at 3.3 percent this year and next, below the historical (2000-19) average of 3.7 percent and broadly unchanged from October.

'Uncertainty' stressed

The IMF update report, titled Global Growth: Divergent and Uncertain, highlights the role and effects of economic policy uncertainty in the world economy, with the word "uncertainty" appearing 27 times.

The IMF report noted that in the medium term, the balance of risks to the outlook is tilted to the downside, with global growth expected to be lower than its 2025-26 average and five-year ahead forecasts at about 3 percent.

In the near term, the US faces upside risks, while downside risks prevail in most other economies due to elevated policy uncertainty and ongoing adjustments, the report said.

The global lender cautioned that policy uncertainty has increased sharply, especially on the trade and fiscal fronts, and expectations of policy shifts under newly elected governments in 2024 have shaped financial market pricing in recent months.

The IMF has revised the world trade volume estimates downward slightly for 2025 and 2026, also due to the sharp increase in trade policy uncertainty, which it said is likely to hurt investment disproportionately among trade-intensive firms.

For China and many other countries, the uncertainty partly stems from President-elect Donald Trump's repeated campaign promises of US tariff hikes.

David Nelson, an adjunct fellow with the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies, or CSIS, in Washington, noted that based on Trump's promises and history, it is certain that he will enact "the most protectionist trade policy" the United States has had in nearly a century.

"At the same time, tremendous US uncertainties surround the policy, including the timing, extent, and duration of the tariffs, as well as the retaliation expected from other countries," Nelson wrote in an article posted on the CSIS website last month.

Gourinchas also noted that while many of the policy shifts under the incoming US administration are hard to quantify precisely, they are likely to push inflation higher in the near term relative to the IMF's baseline.

"Some indicated policies, such as looser fiscal policy or deregulation efforts, would stimulate aggregate demand and increase inflation in the near term, as spending and investment increase immediately. Other policies, such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures," he wrote in the blog.

The chief economist called for "additional efforts" to "strengthen and improve our multilateral institutions to help unlock a richer, more resilient, and sustainable global economy".

"Unilateral policies that distort competition — such as tariffs, nontariff barriers, or subsidies — rarely improve domestic prospects durably. They are unlikely to ameliorate external imbalances and may instead hurt trading partners, spur retaliation, and leave every country worse off," he wrote.

In its report, the IMF noted that an intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could worsen trade tensions, hinder investment, reduce efficiency, disrupt trade and disrupt supply chains.