Global growth forecast rises slightly, inflation set to ease by 2026

Dubai: Global economic growth is expected to pick up slightly in the coming years, according to the International Monetary Fund’s (IMF) latest World Economic Outlook update released for July 2025. The IMF now projects global growth at 3.0% for 2025 and 3.1% for 2026—up 0.2 and 0.1 percentage points respectively from its April forecast.

This upward revision reflects several positive factors including easing US tariff tensions, improved financial conditions boosted by a softer US dollar, and fiscal stimulus in major economies.

At the same time, headline global inflation is expected to fall steadily, reaching 4.2% in 2025 and 3.6% in 2026. However, inflation trends vary significantly by region, with the US predicted to experience inflation above its 2% target through 2026, while the eurozone and other major economies may see more subdued price pressures.

Since April, the trade environment has improved, notably with the US and China agreeing on a temporary tariff reduction through August 12, 2025. However, uncertainty lingers as the US tariff pause is set to expire soon, and some trading partners face threats of even higher duties.

The IMF highlights that while tariffs have become less severe, their effects on prices and inflation will still play out gradually—particularly in the US, where tariffs act as supply shocks pushing consumer prices upward in the latter half of 2025.

Analysts evaluate that tariffs elsewhere dampen demand and ease inflationary pressure, creating a complex global inflation landscape.

Growth in the Middle East and Central Asia is forecast to accelerate to 3.4% in 2025 and 3.5% in 2026, benefiting from regional stability and investment. Sub-Saharan Africa is expected to maintain steady growth at 4.0% next year, improving slightly in 2026.

Meanwhile, Latin America and the Caribbean face a slowdown to 2.2% growth in 2025 before modest recovery, and emerging Europe is projected to experience sluggish growth under 2.5%.

The IMF warns that rising geopolitical tensions—especially in the Middle East or Ukraine—pose significant downside risks. Disruptions to shipping routes, supply chains, and commodity supplies could drive inflation back up and slow growth.

Such shocks would challenge central banks already navigating a fragile balance amid trade uncertainties and could force difficult policy decisions.