The IMF’s ‘World Economic Outlook’ is too coy for a Trump-shaken world
At the best of times, the World Economic Outlook (WEO) published by the International Monetary Fund (IMF) does not pose any risk to human vision with blinding new insights. Ditto for its three quarterly updates. But these are not the best of times. On Wednesday, US President Donald Trump used his very own microblog platform Truth Social to declare that “while India is our friend,” imports from here would have to pay a tariff of 25%, plus a penalty for assorted US grievances, from 1 August.
Other countries have had to contend with such posts too. As the world’s economies toss and turn amid choppy seas of trade uncertainty, policy watchers look to global bodies like the IMF for clues on how to reach calmer waters.
Also Read: IMF outlook: The good, the bad and the unsaid
The latest WEO update, issued on Tuesday, offers little navigational help. It makes some minor tweaks, generally upward, to its growth estimates released in April. Should we be happy that the world economy is expected to grow 3% in 2025, instead of the 2.8% estimated in April, and at 3.1% instead of 3% in 2026? Certainly, even if these are lower than the rates a post-pandemic world was hoping for and could have achieved had it not been for trade turmoil.
The WEO puts the Indian economy’s growth prospects at 6.4% for both 2025-26 and 2026-27, 0.2 and 0.1 percentage points higher than its April figures. While this is good news, it’s only so in the prevailing context.
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As the WEO’s April estimates were based on Trump acting out his ‘Liberation Day’ tariff threats, they assumed sharp hikes by the US and retaliatory barriers erected by its trade partners, with a harsh impact on inflation and growth both in America and elsewhere.
Trump’s actual import levies have shown some moderation since then. He has announced several trade deals, although the cumulative effect of his policy seems poised to raise tariffs from an average of 2.5% pre-Trump to nearly 18% once his deal-making is done and dusted. But these rates are not the only concern. Trumpian tariffs have turfed out the most-favoured-nation principle, the idea that a tariff levied on imports from one member of the World Trade Organization (WTO) must not be higher than the levy on shipments from another member, except as part of a free trade agreement.
Also, the WTO’s dispute settlement mechanism has no place in the new order dictated by the White House. By openly shunning rules, the US has signalled that might is right, with ‘might’ measured by what one can get away with. How should the rest of us adjust to the WTO’s abandonment by the world’s largest economy and issuer of the currency in which foreign trade is usually invoiced? The WEO update is largely silent.
Also Read: India should use Trump’s playbook on Trump for a fair trade deal
Not that the report has nothing to say on what can be done. It advises structural reforms in areas like labour markets, education, regulation and competition, as well as steps to foster tech advances and the adoption of AI. It does not spell out motherhood and apple pie, but these are invisible appendages to the list.
To be fair, the WEO does venture beyond the anodyne to suggest plurilateral or regional solutions, but without any elaboration. Perhaps the rest of the world could forge a pact to abide by WTO norms without the US. It won’t please Trump. But we’re at the raw end of his bargain anyway. For this, why blame a lack of lodestars in the IMF sky? The fault, as we know, is not in the stars, but in ourselves.
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