In its latest edition of the World Economic Outlook, the International Monetary Fund has pruned down the macroeconomic growth projections for 2025 and 2026. This has been done for almost all nations. This comes at a time when, until about January 2025, the world was experiencing moderate but steady growth. Since then, an economic shock has come from the trade policy of the Donald Trump administration. The trade policy has led to two significant sources of uncertainty. The first is about the arbitrary levels of tariffs imposed by the United States of America. The second concerns the random frequency of change in rates. This uncertainty has led to the reduction of the US’s growth projections from 2.8% in 2024 to 1.7% in 2026. For the world as a whole, the projection has been cut from 3.3% in 2024 to 3% in 2026. China is supposed to go down from 5% in 2024 to 4% in 2026. India’s projected growth rate has also witnessed a cut-back — from 6.5% in 2024 to 6.3% in 2026. However, India is expected to experience the highest growth rate in the coming two years. In 2026, India’s growth rate of 6.3% will be followed by that of China at a distant 4%.
The IMF has indicated that cooperation and coordination are the urgent needs of the hour. These are, in fact, the two ingredients of the global order that are being disrupted by the US. The IMF has also flagged two economic issues emerging from the sudden change in trade policies. The first relates to the need of economies to look inward in a post-tariff world. Nations have a great opportunity to rebalance their economies, turning resources towards domestic production and consumption. The ageing demography of most nations would be a positive feature. People could be asked to work for a higher number of years, boosting labour productivity and participation. This, in turn, might help governments correct fiscal imbalances by reducing transfer payments and increasing tax revenues. Second, the IMF has identified migration and movement of labour across national borders as a major problem in the global economy. The movement of refugees and migrants offers opportunities as well as costs to both origin and destination nations. What cannot be denied is that basic economic compulsions will continue to create international push and pull factors for international migration.