IMF warns of trade tension risk to global growth

Trade tensions and a reversal in the artificial intelligence (AI) boom are among the main risks to global economic growth, the International Monetary Fund (IMF) has warned.

Its comments came in its latest world economic outlook, where it described the global economy as “steady”, with growth expected to remain “resilient” this year.

The IMF’s forecast was produced ahead of Donald Trump’s threat at the weekend to impose tariffs on eight European countries opposed to his proposed takeover of Greenland.

The fund also said the independence of central banks was “paramount” for global economic stability and growth.

The economic watchdog said global growth was projected to reach 3.3% this year – an increase from its previous forecast of 3.1% – before slowing slightly to 3.2% in 2027.

The IMF estimates the UK grew by 1.4% in 2025, slightly up from its previous projection of 1.3%. Its forecast for this year remains unchanged at 1.3% and it predicts 1.5% growth in 2027.

Global inflation is expected to fall from an estimated 4.1% in 2025 to 3.8% in 2026 and further to 3.4% the following year.

In the UK, it said inflation is expected to return to the target 2% by the end of the year, as a weakening labour market continues to keep wage growth down.

The IMF said risks to the global outlook “remain tilted to the downside”, warning that if expectations about AI growth turn out to be overly optimistic an abrupt market correction could be triggered.

It also warned: “Trade tensions could flare up, prolonging uncertainty and weighing more heavily on activity.”

On the flip side, it said AI investment could transform into sustainable growth, and activity could be further lifted by a sustained easing of trade tensions.

In October, the IMF said so far there had been a “muted response” to the wave of tariffs imposed on imports to the US last year.

In its latest update – produced before Trump’s latest comments – it said trade tensions had continued to abate since October, and while tariffs and uncertainty were expected to continue having an impact, the effect on growth was expected to fade over the next two years.

The IMF warned that central bank independence was “paramount for macroeconomic stability and economic growth”.

“Preserving the independence of central banks, both legal and operational, remains critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and enabling them to achieve their mandates,” it said.

It comes a week after US Federal Reserve chair Jerome Powell said he was the subject of an “unprecedented” US justice department criminal investigation over his testimony about the bank’s building renovations.

He said he believed this was due to Donald Trump’s anger over the Fed not cutting interest rates, but Trump said he did not know about the investigation.

Powell’s comments prompted central bank heads across the world to declare “full solidarity” with the US Fed chief, while three former heads of the bank strongly criticised the investigation.