Washington (AP) — The International Monetary Fund (IMF) anticipates a modest acceleration in global economic growth and a decline in inflation rates this year. However, it has voiced concerns that the outlook is overshadowed by President-elect Donald Trump’s proposed policies, which include significant tax cuts, tariffs on international goods, and plans for widespread deportations of undocumented immigrants.

The IMF projects a growth rate of 3.3% for the world economy this year and in the following year, an increase from the 3.2% forecasted for 2024. This steady growth appears uninspiring when compared to the annual average of 3.7% seen from 2000 to 2019. Persistent sluggishness is largely attributed to the lasting impacts of major global disruptions, such as the COVID-19 pandemic and the ongoing conflict in Ukraine.

After a period of significant inflation, which peaked following pandemic-induced supply chain disruptions, the IMF anticipates a decrease in global inflation from 5.7% in 2024 to 4.2% this year and 3.5% by 2026. Nonetheless, the IMF Chief Economist, Pierre-Olivier Gourinchas, cautioned that Trump’s policy initiatives “are likely to push inflation higher in the near term.”

The organization highlighted that substantial tax reductions could potentially overheat the economy, causing inflation to rise. Furthermore, large tariffs could temporarily inflate prices and negatively affect exporting nations. The mass deportation initiative could also exacerbate labor shortages in sectors like hospitality and construction, thereby increasing operational costs for businesses and hindering economic growth.

Gourinchas noted that while Trump’s regulatory rollbacks might foster potential growth mid to long-term by reducing bureaucratic hurdles and encouraging innovation, there is a significant risk that overly aggressive deregulation could weaken financial protections and create vulnerabilities, setting the U.S. economy on a precarious growth path.

Despite these challenges, the IMF reported a healthy growth forecast of 2.7% for the U.S. economy this year, which is a revision from its previous estimate of 2.2%. Factors contributing to this resilience include a robust job market that boosts consumer confidence and spending, as well as a steady influx of immigrants that has mitigated labor shortages.

In contrast, advanced economies in Europe are projected to struggle, with the 20 eurozone countries anticipated to grow only 1% this year, an adjustment from the earlier forecast of 1.2%. Challenges include stagnant manufacturing momentum, low consumer confidence, and the adverse energy price shocks stemming from the conflict in Ukraine.

China, the second largest economy, is expected to slow down from 4.8% growth last year to 4.6% in 2025 and 4.5% in 2026, as issues in the housing market dampen consumer confidence. Gourinchas warns that without sufficient governmental stimulus through interest rate reductions or tax incentives, China might enter a debt-deflation stagnation trap, where declining prices hinder spending and complicate loan repayments.

The latest forecasts by the IMF arrive on the heels of a similar outlook from the World Bank, which indicated that global growth rates of 2.7% in the coming years will fail to adequately address poverty reduction in low-income countries. The IMF typically projects higher growth rates than the World Bank as it emphasizes rapidly developing economies.

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