INTERNATIONAL MONETARY FUND

WORLD
ECONOMIC
OUTLOOK
UPDATE
Global Growth:
Divergent and Uncertain

2025
JAN
 STRICTLY
STRICTLY CONFIDENTIAL
CONFIDENTIAL

JAN
2025 WORLD ECONOMIC OUTLOOK UPDATE

Global Growth: Divergent and Uncertain

Global growth is projected at 3.3 percent both in 2025 and 2026, below the historical (2000–19) average of 3.7
percent. The forecast for 2025 is broadly unchanged from that in the October 2024 World Economic
Outlook (WEO), primarily on account of an upward revision in the United States offsetting downward
revisions in other major economies. Global headline inflation is expected to decline to 4.2 percent in 2025 and to
3.5 percent in 2026, converging back to target earlier in advanced economies than in emerging market and
developing economies.
Medium-term risks to the baseline are tilted to the downside, while the near-term outlook is characterized by
divergent risks. Upside risks could lift already-robust growth in the United States in the short run, whereas risks
in other countries are on the downside amid elevated policy uncertainty. Policy-generated disruptions to the ongoing
disinflation process could interrupt the pivot to easing monetary policy, with implications for fiscal sustainability
and financial stability. Managing these risks requires a keen policy focus on balancing trade-offs between inflation
and real activity, rebuilding buffers, and lifting medium-term growth prospects through stepped-up structural
reforms as well as stronger multilateral rules and cooperation.

Forces Shaping the Outlook

The global economy is holding steady, although the degree of grip varies widely across countries.
Global GDP growth in the third quarter of 2024 was 0.1 percentage point below that predicted in
the October 2024 WEO, after disappointing data releases in some Asian and European
economies. Growth in China, at 4.7 percent in year-over-year terms, was below expectations.
Faster-than-expected net export growth only partly offset a faster-than-expected slowdown in
consumption amid delayed stabilization in the property market and persistently low consumer
confidence. Growth in India also slowed more than expected, led by a sharper-than-expected
deceleration in industrial activity. Growth continued to be subdued in the euro area (with
Germany’s performance lagging that of other euro area countries), largely reflecting continued
weakness in manufacturing and goods exports even as consumption picked up in line with the
recovery in real incomes. In Japan, output contracted mildly owing to temporary supply
disruptions. By contrast, momentum in the United States remained robust, with the economy
expanding at a rate of 2.7 percent in year-over-year terms in the third quarter, powered by strong
consumption.
Global disinflation continues, but there are signs that progress is stalling in some countries and that
elevated inflation is persistent in a few cases. The global median of sequential core inflation has
been just slightly above 2 percent for the past few months. Nominal wage growth is showing
signs of moderation, alongside indications of continuing normalization in labor markets.
Although core goods price inflation has fallen back to or below trend, services price inflation is
still running above pre–COVID-19 averages in many economies, most notably the United States
and the euro area. Pockets of elevated inflation, reflecting a range of idiosyncratic factors, also
persist in some emerging market and developing economies in Europe and Latin America.

International Monetary Fund | January 2025

WORLD ECONOMIC OUTLOOK

Where inflation is proving more sticky, central banks are moving more cautiously in the easing
cycle while keeping a close eye on activity and labor market indicators as well as exchange rate
movements. A few central banks are raising rates, marking a point of divergence in monetary
policy.
Global financial conditions remain largely Figure 1. Policy Uncertainty
(Index, unless noted otherwise)
accommodative, again with some
differentiation across jurisdictions (see Box 400 1. Trade Policy Uncertainty
World: News based
12
(Percent on right scale)
1). Equities in advanced economies have 10
300 Euro area: Earnings calls
rallied on expectations of more business- based (right scale) 8
ROW: Earnings calls based
friendly policies in the United States. In 200 (right scale) 6
emerging market and developing economies,
4
equity valuations have been more subdued, 100
2
and a broad-based strengthening of the US
0 0
dollar, driven primarily by expectations of 2016: 18: 20: 22: 24: 24:
Q1 Q1 Q1 Q1 Q1 Q4
new tariffs and higher interest rates in the
United States, has kept financial conditions 108 2. Fiscal Policy Uncertainty
World
500

tighter. 106 United States (right scale) 400

Economic policy uncertainty has increased 104 300

sharply, especially on the trade and fiscal
102 200
fronts, with some differentiation across
countries (Figure 1). Expectations of policy 100 100

shifts under newly elected governments in 98 0

2024 have shaped financial market pricing in Jan.
2016
Jan.
18
Jan.
19
Jan.
21
Jan. Dec.
24 24
recent months. Bouts of political instability
in some Asian and European countries have Sources: Baker, Bloom, and Davis 2016; Caldara and others 2020; Refinitiv Eikon;
and IMF staff calculations.
rattled markets and injected additional Note: The uncertainty measures are news-based indices that quantify media
attention to news related to an issue, in which a value of 100 corresponds to 1
uncertainty regarding stalled progress on percent of news articles that reference the issue. In panel 1, the euro area and the
rest of the world (ROW) are based on the earnings-calls-based indicators,
fiscal and structural policies. Geopolitical representing the proportion of firms that mention trade policy uncertainty (TPU) in
tensions, including those in the Middle East, their earnings calls. This measure reflects companies’ concerns regarding TPU,
based on the dictionary developed by Caldara and others (2020,
and global trade frictions remain elevated. https://doi.org/10.1016/j.jmoneco.2019.11.002). The ROW encompasses 22
countries, including the US. In panel 2, US fiscal policy uncertainty is a
subcomponent of the Economic Policy Uncertainty Index developed by Baker,
The Outlook Bloom, and Davis (2016, https://doi.org/10.1093/qje/qjw024), whereas the indicator
for the world is based on Hong, Ke, and Nguyen (2024,
IMF staff projections assume current https://doi.org/10.5089/9798400288128.001).

policies in place at the time of publication. They incorporate recent market developments and
the impact of heightened trade policy uncertainty, which is assumed to be temporary, with the
effects unwinding after about a year, but refrain from making any assumptions about potential
policy changes that are currently under public debate. Energy commodity prices are expected to
decline by 2.6 percent in 2025, more than assumed in October. This reflects a decline in oil
prices driven by weak Chinese demand and strong supply from countries outside of OPEC+
(Organization of the Petroleum Exporting Countries plus selected nonmember countries,
including Russia), partly offset by increases in gas prices as a result of colder-than-expected
weather and supply disruptions, including the ongoing conflict in the Middle East and outages in

2 International Monetary Fund | January 2025

WORLD ECONOMIC OUTLOOK UPDATE, JANUARY 2025

gas fields. Nonfuel commodity prices are expected to increase by 2.5 percent in 2025, on
account of upward revisions to food and beverage prices relative to the October 2024 WEO,
driven by bad weather affecting large producers. Monetary policy rates of major central banks
are expected to continue to decline, though at different paces, reflecting variations in growth and
inflation outlooks. The fiscal policy stance is expected to tighten during 2025–26 in advanced
economies including the United States and, to a lesser extent, in emerging market and
developing economies.
Global growth is expected to remain stable,
albeit lackluster. At 3.3 percent in both 2025 Figure 2. Evolution of 2025 Growth Forecasts
(Percent)
and 2026, the forecasts for growth are below
3.0 5.0
the historical (2000–19) average of 3.7 United States
percent and broadly unchanged from Euro area
AEs excluding US and euro area
October (Table 1; see also Annex Table 1). 2.5 China (right scale)
EMDEs excluding China (right scale)
The overall picture, however, hides 4.5

divergent paths across economies and a 2.0

precarious global growth profile (Figure 2).
4.0
Among advanced economies, growth forecast 1.5
revisions go in different directions. In the
United States, underlying demand remains
1.0 3.5
robust, reflecting strong wealth effects, a less Jan. Apr. Jul. Oct. Jan.
2024 24 24 24 25
restrictive monetary policy stance, and
supportive financial conditions. Growth is Source: IMF staff calculations.
Note: The x-axis shows the months the World Economic Outlook is published. AEs
projected to be at 2.7 percent in 2025. This = advanced economies; EMDEs = emerging market and developing economies.
is 0.5 percentage point higher than the October forecast, in part reflecting carryover from 2024
as well as robust labor markets and accelerating investment, among other signs of strength.
Growth is expected to taper to potential in 2026.
In the euro area, growth is expected to pick up but at a more gradual pace than anticipated in
October, with geopolitical tensions continuing to weigh on sentiment. Weaker-than-expected
momentum at the end of 2024, especially in manufacturing, and heightened political and policy
uncertainty explain a downward revision of 0.2 percentage point to 1.0 percent in 2025. In 2026,
growth is set to rise to 1.4 percent, helped by stronger domestic demand, as financial conditions
loosen, confidence improves, and uncertainty recedes somewhat.
In other advanced economies, two offsetting forces keep growth forecasts relatively stable. On the
one hand, recovering real incomes are expected to support the cyclical recovery in consumption.
On the other hand, trade headwinds—including the sharp uptick in trade policy uncertainty—
are expected to keep investment subdued.
In emerging market and developing economies, growth performance in 2025 and 2026 is expected to
broadly match that in 2024. With respect to the projection in October, growth in 2025 for China
is marginally revised upward by 0.1 percentage point to 4.6 percent. This revision reflects
carryover from 2024 and the fiscal package announced in November largely offsetting the
negative effect on investment from heightened trade policy uncertainty and property market

International Monetary Fund | January 2025 3

WORLD ECONOMIC OUTLOOK

drag. In 2026, growth is projected mostly to remain stable at 4.5 percent, as the effects of trade
policy uncertainty dissipate and the retirement age increase slows down the decline in the labor
supply. In India, growth is projected to be solid at 6.5 percent in 2025 and 2026, as projected in
October and in line with potential.
In the Middle East and Central Asia, growth is projected to pick up, but less than expected in
October. This mainly reflects a 1.3 percentage point downward revision to 2025 growth in Saudi
Arabia, mostly driven by the extension of OPEC+ production cuts. In Latin America and the
Caribbean, overall growth is projected to accelerate slightly in 2025 to 2.5 percent, despite an
expected slowdown in the largest economies of the region. Growth in sub-Saharan Africa is
expected to pick up in 2025, while it is forecast to slow down in emerging and developing Europe.
World trade volume estimates are revised downward slightly for 2025 and 2026. The revision owes
to the sharp increase in trade policy uncertainty, which is likely to hurt investment
disproportionately among trade-intensive firms. That said, in the baseline, the impact of
heightened uncertainty is expected to be transitory. Furthermore, the front-loading of some
trade flows in view of elevated trade policy uncertainty, and in anticipation of tighter trade
restrictions, provides some offset in the near term.
Progress on disinflation is expected to continue. Deviations from the October 2024 WEO
forecasts are minimal. The gradual cooling of labor markets is expected to keep demand
pressures at bay. Combined with the expected decline in energy prices, headline inflation is
projected to continue its descent toward central bank targets. That said, inflation is projected to
be close to, but above, the 2 percent target in 2025 in the United States, whereas inflationary
dynamics are expected to be more subdued in the euro area. Low inflation is projected to persist
in China. Consequently, the gap between anticipated policy rates in the United States and other
countries becomes wider.

Risks to the Outlook

In the medium term, the balance of risks to the outlook is tilted to the downside, with global
growth poised to be lower than its 2025–26 average and five-year-ahead forecasts at about 3
percent. Near-term risks, in contrast, could reinforce divergences across countries: they are tilted
to the upside in the United States, whereas downside risks prevail in most other economies amid
elevated policy uncertainty and headwinds from ongoing adjustments (in particular, energy in
Europe and real estate in China).
An intensification of protectionist policies, for instance, in the form of a new wave of tariffs,
could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows,
and again disrupt supply chains. Growth could suffer in both the near and medium term, but at
varying degrees across economies.
Looser fiscal policy in the United States, driven by new expansionary measures such as tax cuts,
could boost economic activity in the near term, with small positive spillovers onto global
growth. Yet in the longer run, this may require a larger fiscal policy adjustment that could
become disruptive to markets and the economy, by potentially weakening the role of US
Treasuries as the global safe asset, among other things. Furthermore, higher borrowing to fund

4 International Monetary Fund | January 2025

WORLD ECONOMIC OUTLOOK UPDATE, JANUARY 2025

looser fiscal policy could increase demand for capital globally, leading to an increase in interest
rates and possibly depressing economic activity elsewhere.
Confidence and positive sentiment in the United States, partly driven by deregulation, could
boost both the demand and the supply side of the economy. While relaxation of unduly tight
regulations and reduced red tape for businesses may spur near-term US growth through higher
investment, dollar appreciation could fuel risks of capital outflows from emerging market and
developing economies and drive risk premiums upward. Moreover, an excessive rollback of
regulations designed to put limits on risk-taking and debt accumulation may generate boom-bust
dynamics for the United States in the longer term, with repercussions for the rest of the world.
Downside risks to macro-financial stability may be amplified if compounded by a weaker fiscal
outlook or stalled progress on structural reforms. Other supply-side shocks, such as labor force
disruptions driven by reductions in migration flows to the United States, may permanently
reduce potential output and raise inflation during the adjustment period.
A near-term boost for the US economy emanating from these factors would further underscore
the divergent growth patterns across economies. If the adverse effects of tariffs and reduction in
the labor force dominate, global activity as well as activity in the United States might be affected
negatively in the medium term. Uncertainties are high: the effects of each factor would unfold
differently across countries, influenced by trade and financial linkages; policy responses to
actions taken by other countries could play out in a variety of ways, including an escalation of
retaliatory tariffs; and the impacts of different policy combinations or different magnitudes of
policy changes could be quite different.
Inflation dynamics could be shaped in
Figure 3. Cross-Country Inflation Expectations
opposite directions by these factors. The (Percentage point deviation from target, next 12 months)
magnitude of the inflationary effect from
2
tariffs is especially uncertain. While recent 2017–21 average 2024 average
empirical studies find high pass-through to
import prices, estimates of pass-through to 1

consumer prices are lower and subject to

significant uncertainty. Nevertheless, 0
compared with what took place in earlier
episodes of trade disputes, several factors –1
suggest that upside risks to inflation from tariff
hikes could be higher this time. First, the
–2
global economy is coming out of the most AEs EMDEs
significant inflation surge in recent memory.
Sources: Central bank websites; Consensus Economics; Haver Analytics; and IMF
Inflation expectations, especially in many staff calculations.
Note: The horizontal lines in the middle of the boxes are the medians, and the upper
advanced economies, are farther above the (lower) limits of the boxes are the third (first) quartiles. The whiskers show the
central bank target today than in 2017–21 maximum and minimum within a boundary of 1.5 times the interquartile range from
the upper and lower quartiles, respectively. AEs = advanced economies; EMDEs =
(Figure 3). Second, the cyclical positions of emerging market and developing economies.
many major economies are more conducive to higher inflation today than in 2016. Third,
retaliation in the form of restrictions on specific, difficult-to-substitute materials or intermediate
goods may have an outsized impact on aggregate inflation.

International Monetary Fund | January 2025 5

WORLD ECONOMIC OUTLOOK

The risk of renewed inflationary pressures could prompt central banks to raise policy rates and
intensify monetary policy divergence. Higher-for-even-longer interest rates could worsen fiscal,
financial, and external risks. A stronger US dollar, arising from interest rate differentials and
tariffs, among other factors, could alter capital flow patterns and global imbalances and
complicate macroeconomic trade-offs.
In addition to risks from economic policy shifts, geopolitical tensions could intensify, leading to
renewed spikes in commodity prices. The conflicts in the Middle East and Ukraine could
worsen, directly affecting trade routes as well as food and energy prices. Commodity-importing
countries may be particularly affected, with the stagflationary impact of higher commodity prices
compounded by an appreciating dollar.
On the upside, global economic activity may enjoy a bounce if incoming governments can
renegotiate existing trade agreements and forge new deals. This could relieve uncertainty faster
and be much less disruptive to growth and inflation. By boosting confidence, such cooperative
outcomes could even support investment and medium-term growth prospects.
Momentum on other policy fronts could also lift growth. Many countries may embrace
structural reforms to prevent divergence from their better-performing peers from becoming
entrenched. Efforts to increase labor supply, reduce misallocation, enhance competition, and
support innovation could raise medium-term growth.

Policy Priorities
Against the backdrop of elevated uncertainty, policies need to rein in short-term risks and
rebuild buffers while pushing ahead efforts to lift medium-term growth prospects.
Monetary policy should ensure that price stability is restored while supporting activity and
employment. In economies in which inflationary pressures are proving persistent and the risk of
upside surprises is on the rise, a restrictive stance will need to be maintained until evidence is
clearer that the underlying inflation is sustainably returning to target. In economies in which
activity is cooling fast and inflation is on track to durably go back to target, a less restrictive
stance is justified.
In either case, fiscal policy should consolidate to put public debt on a sustainable path and
restore the space needed for more agile responses. The consolidation path needs to be carefully
calibrated to the conditions a particular economy is facing. It should be sizable yet gradual to
avoid hurting economic activity, clearly communicated to avoid disruptions in debt markets, and
credible to achieve long-lasting results. Adopting a growth-friendly approach and mitigating the
adverse impacts on poor individuals could help preserve the economy’s potential and maintain
public support.
The divergent paths of monetary policy across countries could generate significant movements
in exchange rates and capital flows. As laid out in the IMF’s Integrated Policy Framework,
adjusting policy rates and allowing exchange rate flexibility are advisable for countries with deep
foreign exchange markets and low levels of foreign-currency debt. For those with shallow
foreign exchange markets and substantial amounts of foreign-currency debt, temporary foreign
exchange interventions (provided that foreign reserves are adequate and used prudently), capital

6 International Monetary Fund | January 2025

WORLD ECONOMIC OUTLOOK UPDATE, JANUARY 2025

flow management measures, macroprudential policies, or some combination of the three could,
in some cases, accompany appropriately set monetary and fiscal policies to preserve macro-
financial stability.
Beyond the near term, decisive policy action is needed to enhance economic dynamism, boost
the supply side, and counter the rising risks to the already-dim medium-term growth prospects.
Targeted reforms in labor markets, competition, health care, education, and digitalization can
revive productivity growth and attract capital. Active communication to build consensus and
continuous engagement with key stakeholders could help policymakers design and effectively
implement measures that consider the distributional impact of reform (see Chapter 3 of the
October 2024 WEO).
Last but not least, multilateral cooperation is vital in containing fragmentation, sustaining growth
and stability, and addressing global challenges. Trade policies should be consistent with the legal
framework of the World Trade Organization (WTO), as well as being clear and transparent, to
reduce uncertainty, lower volatility in markets, and mitigate distortions. Priorities should be
given to restoring a fully and well-functioning WTO dispute settlement system, leveling the
playing field, and achieving clarity and coherence of the desire among countries for greater
resilience within the rules-based multilateral trading system.

International Monetary Fund | January 2025 7

WORLD ECONOMIC OUTLOOK

Table 1. Overview of the World Economic Outlook Projections

(Percent change, unless noted otherwise)
Year ov er Year
Difference from October 2024 Q4 ov er Q4 2/
Estimate Projections WEO Projections 1/ Estimate Projections
2023 2024 2025 2026 2025 2026 2024 2025 2026
World Output 3.3 3.2 3.3 3.3 0.1 0.0 3.4 3.2 3.1
Advanced Economies 1.7 1.7 1.9 1.8 0.1 0.0 1.8 1.9 1.7
United States 2.9 2.8 2.7 2.1 0.5 0.1 2.7 2.4 2.1
Euro Area 0.4 0.8 1.0 1.4 –0.2 –0.1 1.1 1.2 1.4
Germany –0.3 –0.2 0.3 1.1 –0.5 –0.3 –0.1 0.8 0.9
France 1.1 1.1 0.8 1.1 –0.3 –0.2 0.7 1.0 1.2
Italy 0.7 0.6 0.7 0.9 –0.1 0.2 0.6 1.0 0.7
Spain 2.7 3.1 2.3 1.8 0.2 0.0 3.2 1.9 2.0
Japan 1.5 –0.2 1.1 0.8 0.0 0.0 0.7 0.8 0.7
United Kingdom 0.3 0.9 1.6 1.5 0.1 0.0 1.7 1.8 1.3
Canada 1.5 1.3 2.0 2.0 –0.4 0.0 1.8 2.1 1.9
Other Adv anced Economies 3/ 1.9 2.0 2.1 2.3 –0.1 0.0 1.7 2.8 1.7
Emerging Market and Developing Economies 4.4 4.2 4.2 4.3 0.0 0.1 4.6 4.2 4.2
Emerging and Dev eloping Asia 5.7 5.2 5.1 5.1 0.1 0.2 5.6 4.9 5.1
China 5.2 4.8 4.6 4.5 0.1 0.4 4.9 4.5 4.5
India 4/ 8.2 6.5 6.5 6.5 0.0 0.0 7.5 6.5 6.5
Emerging and Dev eloping Europe 3.3 3.2 2.2 2.4 0.0 –0.1 2.3 2.9 1.6
Russia 3.6 3.8 1.4 1.2 0.1 0.0 2.7 1.2 1.2
Latin America and the Caribbean 2.4 2.4 2.5 2.7 0.0 0.0 2.6 2.7 2.4
Brazil 3.2 3.7 2.2 2.2 0.0 –0.1 4.1 2.1 2.3
Mex ico 3.3 1.8 1.4 2.0 0.1 0.0 1.8 1.4 2.1
Middle East and Central Asia 2.0 2.4 3.6 3.9 –0.3 –0.3 ... ... ...
Saudi Arabia –0.8 1.4 3.3 4.1 –1.3 –0.3 5.0 1.2 4.1
Sub-Saharan Africa 3.6 3.8 4.2 4.2 0.0 –0.2 ... ... ...
Nigeria 2.9 3.1 3.2 3.0 0.0 0.0 3.5 3.7 3.8
South Africa 0.7 0.8 1.5 1.6 0.0 0.1 1.7 0.6 2.2
Memorandum
World Grow th Based on Market Ex change Rates 2.8 2.7 2.9 2.8 0.1 0.1 2.9 2.7 2.6
European Union 0.6 1.0 1.4 1.7 –0.2 0.0 1.3 1.5 1.7
ASEAN-5 5/ 4.0 4.5 4.6 4.5 0.1 0.0 4.9 3.9 5.0
Middle East and North Africa 1.8 2.0 3.5 3.9 –0.5 –0.3 ... ... ...
Emerging Market and Middle-Income Economies 4.5 4.2 4.2 4.2 0.0 0.1 4.6 4.2 4.2
Low -Income Dev eloping Countries 4.1 4.1 4.6 5.4 –0.1 –0.2 ... ... ...
World Trade Volume (goods and services) 6/ 0.7 3.4 3.2 3.3 –0.2 –0.1 ... ... ...
Adv anced Economies 0.0 2.2 2.1 2.5 –0.5 –0.3 ... ... ...
Emerging Market and Dev eloping Economies 2.0 5.4 5.0 4.6 0.3 0.2 ... ... ...
Commodity Prices
Oil 7/ –16.4 –1.9 –11.7 –2.6 –1.3 1.0 –10.8 –5.0 –2.2
Nonfuel (av erage based on w orld commodity import –5.7 3.4 2.5 –0.1 2.7 –0.9 7.1 0.1 0.5
World Consumer Prices 8/ 6.7 5.7 4.2 3.5 –0.1 –0.1 5.2 3.5 3.0
Adv anced Economies 9/ 4.6 2.6 2.1 2.0 0.1 0.0 2.2 2.1 2.0
Emerging Market and Dev eloping Economies 8/ 8.1 7.8 5.6 4.5 –0.3 –0.2 7.6 4.6 3.8
No te: Real effective exchange rates are assumed to remain co nstant at the levels prevailing during Octo ber 22–No vember 19, 2024. Eco no mies are listed o n the basis o f
eco no mic size. The aggregated quarterly data are seaso nally adjusted. "..." indicates that data are no t available o r no t applicable. WEO = Wo rld Eco no mic Outlo o k.
1/ Difference based o n ro unded figures fo r the current and Octo ber 2024 WEO fo recasts. Co untries fo r which fo recasts have been updated relative to Octo ber 2024 WEO
fo recasts acco unt fo r appro ximately 90 percent o f wo rld GDP measured at purchasing-po wer-parity weights.
2/ Fo r Wo rld Output (Emerging M arket and Develo ping Eco no mies), the quarterly estimates and pro jectio ns acco unt fo r appro ximately 90 percent (80 percent) o f annual
wo rld (emerging market and develo ping eco no mies) o utput at purchasing-po wer-parity weights.
3/ Excludes the Gro up o f Seven (Canada, France, Germany, Italy, Japan, United Kingdo m, United States) and euro area co untries.
4/ Fo r India, data and pro jectio ns are presented o n a fiscal year (FY) basis, with FY 2023/24 (starting in A pril 2023) sho wn in the 2023 co lumn. India's gro wth pro jectio ns are
6.8 percent fo r 2025 and 6.5 percent fo r 2026 based o n calendar year.
5/ Indo nesia, M alaysia, P hilippines, Singapo re, Thailand.
6/ Simple average o f gro wth rates fo r expo rt and impo rt vo lumes (go o ds and services).
7/ Simple average o f prices o f UK B rent, Dubai Fateh, and West Texas Intermediate crude o il. The average assumed price o f o il in US do llars a barrel, based o n futures
markets (as o f No vember 20, 2024), is $ 69.76 fo r 2025 and $ 67.96 fo r 2026.
8/ Excludes Venezuela.
9/ The assumed inflatio n rate fo r the euro area is 2.1percent fo r 2025 and 2.0 percent fo r 2026, that fo r Japan is 2.0 percent fo r 2025 and 2.0 percent fo r 2026, and that fo r the
United States is 2.0 percent fo r 2025 and 2.1percent fo r 2026.

8 International Monetary Fund | January 2025

JAN
2025 GLOBAL FINANCIAL MARKETS UPDATE

Divergence between expected paths of US policy rates in relation to those of other major advanced and
emerging market economies has widened over the past
quarter. This follows a period of synchronicity in monetary Figure 1.1. Market-Implied Six-Month-Forward Policy Rate
(Five-day moving average, percentage points)
policies globally earlier in the year. Concerns about tepid
US Euro area US EM average
economic growth in the euro area and some major emerging (right scale) (right scale)
5.3 3.6 5.3 5.9
markets have increased investor expectations that their central Oct. 2024 Oct. 2024
5.1 GFSR 3.4 5.1
banks will ease monetary policy at a faster pace than expected at GFSR 5.8
4.9 3.2 4.9
the time of publication of the October 2024 Global Financial 5.7
4.7 4.7
3.0
Stability Report (Figure 1.1). Such expectations do not apply to the 4.5 5.6
4.5
2.8
Federal Reserve, however, on net. Medium- to long-term US 4.3 4.3 5.5
2.6
yields have increased somewhat over the same period, while 4.1 4.1 5.4
2.4
falling in other major advanced and emerging market economies, 3.9 3.9
5.3
with the widening of interest rate differentials strengthening the 3.7 2.2
3.7
US dollar against major currencies. Furthermore, while recent 3.5 2.0 3.5 5.2

data suggest the US labor market may be coming into better 3.3 1.8 3.3 5.1

Jun. 24

Jan. 25
Jul. 24
Aug. 24
Sep. 24

Nov. 24
Dec. 24
Oct. 24

Jun. 24

Jan. 25
Aug. 24
Sep. 24
Oct. 24
Nov. 24
Dec. 24
Jul. 24
balance, upside risks to inflation will likely continue to exert
upward pressure on yields. Sources: Bloomberg Finance L.P.; and IMF staff calculations.
Note: The EM group comprises Chile, China, Colombia, India, Malaysia, Mexico, Poland, South Africa, and
Thailand; EM = emerging markets. GFSR = Global Financial Stability Report.
Escalated trade policy uncertainty has also contributed to
broad-based US dollar strengthening. Heightened
geopolitical risks, in part, alongside trade uncertainty could have driven the dollar’s strength against the euro. In the
case of emerging market currencies, depreciation against the dollar has also been driven, to some extent, by concerns
over domestic fiscal outlooks, although the latter’s importance varies
across countries. In tandem with pressures on currencies, emerging Figure 1.2. Financial Conditions Index
(Number of standard deviations from the mean)
markets have also seen a net outflow of capital. 1
United States
Overall, even as global financial conditions are still broadly Euro area
Other advanced economies
accommodative in aggregate, they have tightened slightly China
since October (Figure 1.2). US equity valuations continued to touch Emerging markets excluding China
1.0
Oct. 2024
new record highs in the fourth quarter of 2024, driven by 0.5 GFSR
expectations of a favorable policy mix for firms.2 That said, this has
0.0
been offset by the effects of a rise in long-term rates, resulting in a
–0.5
slight tightening, on net, though from the very easy levels in the
previous quarter. Risk assets in emerging markets, however, appear –1.0

to have shown greater sensitivity to trade policy uncertainty and –1.5

Jun. 24
Mar. 24
23

Sep. 24

Dec. 24
2023

currency outlooks, reflected in tighter financial conditions. Market

Dec.
Dec.

participants are closely monitoring tariff policies and geopolitical

risks, as these could weigh on market sentiment, potentially leading Sources: Bloomberg Finance L.P.; Dealogic; EUROPACE AG/Haver Analytics; national data
sources; and IMF staff calculations.
to sharp repricing in risk assets given their current lofty valuations, Note: GFSR = Global Financial Stability Report.

bringing an abrupt tightening in global financial conditions.

This box was prepared by the Monetary and Capital Markets Department’s Global Markets Analysis Division. It provides an update on market developments since the October 2024
Global Financial Stability Report.
1A narrow definition of capital flows is used here, restricted to portfolio flows, on account of lags in official data availability. The emerging markets group here excludes China.
2 Buoyancy in US equity market valuation could be reflecting investor expectations of possible deregulation and tax cuts, which may serve to reinforce the robust US growth outlook.

International Monetary Fund | January 2025 9

JAN
2025 WORLD ECONOMIC OUTLOOK UPDATE: ANNEX

2024 Annex Table 1. Selected Economies Real GDP Growth

(Percent change)
Difference from October
Estimate Projections 2024 WEO Projections 1/
2023 2024 2025 2026 2025 2026
Argentina –1.6 –2.8 5.0 5.0 0.0 0.3
Australia 2.1 1.2 2.1 2.2 0.0 0.0
Brazil 3.2 3.7 2.2 2.2 0.0 –0.1
Canada 1.5 1.3 2.0 2.0 –0.4 0.0
China 5.2 4.8 4.6 4.5 0.1 0.4
Egy pt 2/ 3.8 2.4 3.6 4.1 –0.5 –1.0
France 1.1 1.1 0.8 1.1 –0.3 –0.2
Germany –0.3 –0.2 0.3 1.1 –0.5 –0.3
India 2/ 8.2 6.5 6.5 6.5 0.0 0.0
Indonesia 5.0 5.0 5.1 5.1 0.0 0.0
Iran 2/ 5.0 3.7 3.1 2.8 0.0 0.0
Italy 0.7 0.6 0.7 0.9 –0.1 0.2
Japan 1.5 –0.2 1.1 0.8 0.0 0.0
Kazakhstan 5.1 4.0 5.5 4.1 0.9 0.6
Korea 1.4 2.2 2.0 2.1 –0.2 –0.1
Malay sia 3.6 5.0 4.7 4.4 0.3 0.0
Mex ico 3.3 1.8 1.4 2.0 0.1 0.0
The Netherlands 0.1 0.9 1.6 1.8 0.0 0.1
Nigeria 2.9 3.1 3.2 3.0 0.0 0.0
Pakistan 2/ –0.2 2.5 3.0 4.0 –0.2 0.0
Philippines 5.5 5.8 6.1 6.3 0.0 0.0
Poland 0.1 2.8 3.5 3.3 0.0 –0.1
Russia 3.6 3.8 1.4 1.2 0.1 0.0
Saudi Arabia –0.8 1.4 3.3 4.1 –1.3 –0.3
South Africa 0.7 0.8 1.5 1.6 0.0 0.1
Spain 2.7 3.1 2.3 1.8 0.2 0.0
Thailand 1.9 2.7 2.9 2.6 –0.1 0.0
Türkiy e 5.1 2.8 2.6 3.2 –0.1 0.0
United Kingdom 0.3 0.9 1.6 1.5 0.1 0.0
United States 2.9 2.8 2.7 2.1 0.5 0.1

So urce: IM F staff calculatio ns.

No te: The selected eco no mies acco unt fo r appro ximately 83 percent o f wo rld o utput.
1/ Difference based o n ro unded figures fo r the current and Octo ber 2024 WEO fo recasts.
2/ Data and fo recasts are presented o n a fiscal year basis.

10 International Monetary Fund | January 2025 WEO Update © 2025 ISBN 979-8-40029-167-8