## ch1

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### Headline Inflation and Labor Markets
- Headline and core inflation sample: median of 57 economies accounting for 78 percent of WEO world GDP (PPP weights) in 2024; vertical axes cut off at −2 percent and 12 percent; bands depict 25th–75th percentiles.
- Definition: “Core inflation” = percent change in CPI excluding food and energy (or closest available measure).
- Labor market indicators:
  - Unemployment rates and vacancy-to-unemployment ratios used to show conditions.
  - India urban unemployment based on Periodic Labour Force Survey; “lowest point” spans March 2019 to latest available.
  - “Europe” composition for panel 2 explicitly listed (Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, and Sweden).
  - EA = euro area.

### Growth Performance, Output Gaps, and Structural Forces
- Real GDP growth and global output gap presented for AEs, EMDEs, euro area, US, China; income growth and cost-of-living changes shown relative to 2019:Q4.
- China:
  - Prolonged real estate weakness depressed domestic demand despite policy support.
  - Consumer confidence plunged in early 2022 and has not recovered.
  - Construction and real estate activity remains subdued; industry, trade, and transport robust.
- Cross-country differences reflect cyclical and structural factors; most economies have made up some pandemic damage versus prepandemic trend; the United States is an outlier with less pronounced scarring.

### Energy Shock, Productivity, and Investment
- Energy shock following Russia’s invasion of Ukraine:
  - Twofold effects, notably on European economies exposed to natural gas disruptions; strengthened dollar; stagflationary pressures on commodity importers.
  - US partially insulated by transition to net energy exporter.
- Productivity and investment:
  - Labor productivity growth declined in nearly every country besides the United States.
  - Capital shallowing from chronic investment weakness explains roughly half of the productivity slowdown in AEs since 2010 and about a third in EMDEs.
  - US labor market flexibility and job-to-job transitions explain a large share of productivity growth since 2020.
  - Industrial production: soared in China and expanded in smaller EU economies and ASEAN-5; struggled in Japan and largest EU countries; US recovered more strongly than many AE peers.

### Fiscal Conditions, Yields, and Inflation Expectations
- Fiscal space and debt dynamics:
  - Fiscal adjustment required to stabilize debt ratios is at a historic high.
  - Debt service as a fraction of fiscal revenue is rising.
  - Effective rates likely to surpass prepandemic levels as debt rolls over, notably for low-income countries and some EMDEs.
- Real long-term government bond yields have risen after prolonged low rates; term premiums surged recently.
- Inflation expectations now exceed central bank targets in most AEs and EMDEs; yields sensitive to inflation surprises and diminishing fiscal space.

*Source: ch1 - 1. Headline Inflation (chapter excerpt) — World Economic Outlook: A Critical Juncture Amid Policy Shifts, International Monetary Fund | April 2025*

### Cross-Country Inflation Expectations (next 12 months) and Global Consumer Prices (Table 1.1)
- Sample and methodology:
  - Panel 1 sample: 30 AEs and 31 EMDEs.
  - Boxplot note: horizontal lines = medians; box limits = first and third quartiles; whiskers = max/min within 1.5 × IQR.
  - “One year” based on March 2025 data; EA = euro area.
- Key global consumer price assumptions (Table 1.1):
  - World Consumer Prices: 5.7 (2024), 4.3 (2025), 3.6 (2026).
  - Advanced Economies inflation: 2.6 (2024), 2.5 (2025), 2.2 (2026).
  - Emerging Market and Developing Economies inflation: 7.7 (2024), 5.5 (2025), 4.6 (2026).
  - Selected assumed inflation rates:
    - euro area: 2.1 percent (2025) and 1.9 percent (2026).
    - Japan: 2.4 percent (2025) and 1.7 percent (2026).
    - United States: 3.0 percent (2025) and 2.5 percent (2026).
- Methodology notes:
  - Excludes Venezuela for world consumer prices.
  - Real effective exchange rates assumed constant at levels prevailing during March 6, 2025–April 3, 2025.

*Italic — Source: ch1 - 1. Cross-Country Inflation Expectations (chapter content), April 2025 World Economic Outlook (IMF).*

### Global Growth Outlook and Inflation Forecasts
- World output projections: 2.8 percent (2024), 2.3 percent (2025), 2.4 percent (2026).
  - 2025 projection is 0.5 percentage point lower relative to the January 2025 WEO Update.
- Global headline inflation: 4.3 percent (2025) and 3.6 percent (2026).
- Advanced economies (aggregate): 1.8 percent (2024), 1.4 percent (2025), 1.5 percent (2026); differences from January 2025 WEO Update: –0.6 (2025) and –0.3 (2026).
- United States:
  - Projected growth: 1.8 percent in 2025 (1 percentage point lower than 2024).
  - Revision: 0.9 percentage point lower than January 2025 WEO Update.
- Emerging Market and Developing Economies (aggregate): 4.1 percent (2024), 3.7 percent (2025), 3.9 percent (2026); revisions versus January 2025 WEO Update: –0.6 (2025) and –0.4 (2026).
- Selected regional and country projections (2025 unless otherwise noted):
  - China: 4.0 percent (2025), revised down from 4.6 percent in January; 4.0 percent (2026) revised from 4.5 percent.
  - India: 6.2 percent (2025), 0.3 percentage point lower than January.
  - Spain: 2.5 percent (2025), upward revision of 0.2 percentage point from January.
  - Mexico: downgrade by 1.7 percentage points for 2025.
  - Russia: 1.5 percent (2025), 0.9 percent (2026).
  - Türkiye: 2.7 percent (2025), 3.2 percent (2026).
- Medium-term outlook:
  - Five-year-ahead growth forecast: 3.2 percent (below 2000–19 historical average of 3.7 percent).
  - World trade growth expected to slow to 1.7 percentage point in 2025; downward revision of 1.5 percentage point since January 2025 WEO Update.

### Risks — Tilted to the Downside
- Overall risk tilt: downside in both short and medium term.
- Trade measures and uncertainty:
  - A ratcheting up of a trade war would negatively affect world GDP; directly targeted countries like China and the United States and many Asian and European economies would be most affected.
  - Potential consequences: fragmented FDI flows, reduced capital accumulation, resource misallocation, loss of knowledge hubs, contraction in bank credit, and financial stability risks.
- Inflationary channels of trade war:
  - Rising import prices; amplified by more than 80 percent of trade invoicing in US dollars, potential US dollar appreciation, inflation expectations above central bank targets, and restrictions on commodities with concentrated production.
  - Distributional effects: tariffs tend to raise tradable goods prices, disproportionately affecting poor households and retirees.
- Recent dynamics:
  - In Q1 2025, new restrictive measures announced increased by 16 percent relative to December 2024, with actions ratcheting from April 2 onward.
- Probability assessments:
  - Probability of a recession in 2025: 37 percent (recession defined as 2025 annual growth below 1.2 percent).
  - Probability of a short-lived US recession in 2025 (October 2024 assessment): about 25 percent.

*Source: IMF staff estimates, World Economic Outlook, April 2025.*

### Trade-Restrictive Measures, Spillovers, and Macro-Financial Risks
- Trade policy indicators:
  - Number of measures charted (counts up to 3,500 in figure axis); fragmentation keywords in earnings calls indexed (2013–15 = 100).
  - Sources: Global Trade Alert; Refinitiv Eikon; IMF staff calculations.
- US dollar appreciation spillovers:
  - Effects quantified using impulse responses for a 10 percent appreciation in the nominal US dollar index with 90 percent confidence intervals.
  - EMDE inflation estimates based on bilateral pass-through and FX depreciation against the US dollar between mid-September 2024 and beginning of January 2025.
- Macro-financial risks:
  - Policy-uncertainty-driven risk aversion surge or decline in US growth could lead to US dollar depreciation and market volatility.
  - Persistent inflation could keep interest rates higher, triggering capital outflows and tighter financial conditions in EMDEs.
  - Balance of payments crisis risk for small countries with high refinancing needs and weak negotiation capacity.
  - Commodity exporters face amplified risks from declines in oil and copper prices.
- Social and cooperation risks:
  - Rising social discontent from cost-of-living crisis and reduced growth prospects; risk pronounced in Africa and parts of Asia.
  - Scaling back climate adaptation and international aid would worsen outcomes in low-income and fragile countries.
- Natural disasters:
  - Three-year moving average of disaster frequency and costs shown by type; costs panel up to 400 (axis values in billions of US dollars, CPI adjusted).
- Conflict impacts:
  - “War tax” on growth can reach 30 percent of GDP; inflation rates as high as 15 percent (Federle and others 2024).
  - Negative spillovers from conflicts estimated between 5 percent and 10 percent of GDP over five to seven years after onset.

### Upside Scenarios
- Next-generation trade agreements (regional, plurilateral, multilateral) could increase investment, productivity, potential growth, and resilience.
- Mitigation of conflicts and reconstruction could boost growth and positive spillovers.
- Structural reform momentum (streamlining regulations, reducing red tape, integrating markets) could unlock productivity and potential growth.
- AI as a growth engine: significant annual reduction in AI usage costs could boost productivity and consumption if accompanied by supportive policies (Cazzaniga and others 2024).

### Policy Recommendations and Priorities
- Restore confidence and stability, reduce imbalances, and sustainably lift growth by:
  - Reducing policy-induced uncertainty and resolving trade tensions.
  - Calibrating monetary and prudential policies carefully to maintain price and financial stability.
  - Gradually rebuilding fiscal space and buffers.
  - Delivering structural reforms to lift medium-term growth and prudently harness technological advances.
- Managing trade tensions and elevated trade policy uncertainty:
  - Urgently resolve trade tensions and promote clear, transparent trade policies.
  - Pursue pragmatic cooperation and deeper economic integration (nondiscriminatory unilateral reductions of trade barriers or regional/plurilateral/multilateral agreements).
  - Recognize broad subsidies generate large fiscal costs and distortions; target industrial policies narrowly and subject them to cost-benefit analysis.
  - Encourage cooperation on industrial policy approaches among partners to minimize distortions.

*Source: ch1 - 1. Trade-Restrictive Measures, World Economic Outlook: A Critical Juncture Amid Policy Shifts, International Monetary Fund | April 2025 (chapter PDF).*

### Monetary, Fiscal, Prudential Guidance, and Structural Reforms
- Monetary policy:
  - Calibrate to country-specific circumstances amid multifaceted shocks, including trade policy shocks and April 2025 asset price correction.
  - Future cuts contingent on evidence that inflation is heading decisively back toward target.
  - Where growth declines and inflation expectations return toward target, gradual reductions in policy rate may be appropriate.
- Monetary–financial stability trade-offs:
  - Elevated uncertainty intensifies trade-off between anchoring inflation expectations and safeguarding financial stability.
- Managing FX volatility:
  - Countries with deep FX markets: exchange rate flexibility and raising policy rates; provide liquidity support as needed.
  - Countries with shallow FX markets or large foreign-currency debt: temporary FX interventions or capital flow management may be appropriate, complemented by macroprudential measures.
- Prudential policy:
  - Release macroprudential buffers where jurisdictions face stress; deploy liquidity and fiscal instruments if stress reaches crisis proportions.
  - Maintain macroprudential policies and Basel III reforms; strengthen reporting and policies for nonbank financial institutions.
- Fiscal policy:
  - Priority to restore fiscal space, credible medium-term consolidation, reprioritize expenditures, broaden tax bases.
  - Permanent increases in spending should be financed with revenues; temporary, targeted measures only for those affected by severe trade dislocations.
  - Protect vulnerable groups and prioritize high-quality public investments.
- Structural reforms to reinvigorate medium-term growth:
  - Labor market, education, regulation and competition, and financial sector reforms; increase female labor force participation; policies for older workers; migration and integration to attenuate demographic headwinds.
  - Maintain prudential regulations when reducing bureaucracy.

*Source: CHAPTER 1 GLOBAL PROSPECTS AND POLICIES — World Economic Outlook, April 2025 (PDF).*

### Scenarios A and B (GIMF and Trade Models) — Design and Quantitative Impacts
- Scenario A (global divergences, trade war, higher uncertainty, tighter financial conditions):
  - TCJA renewal: about 11 percent of GDP over 2025–34; deficits reach about 1.4 percent of GDP by 2027.
  - Additional 50 percentage point increase in tariffs on all China-US trade; net result ≈ 18 percentage points increase in effective tariff rate on both US goods imports and exports relative to reference.
  - Uncertainty shock ≈ three-standard-deviation increase in global economic policy uncertainty (≈ 50 percent larger than 2018–19 spike).
  - Asset prices decline in 2025: US ≈ 5 percent on average for the year; emerging markets ≈ 3 percent.
  - Sovereign and corporate premiums: EMs excl China +50 basis points; corporate premiums in AEs and China +25 basis points.
  - Simulated impacts:
    - Combined effect: global GDP −1.3 percent by 2025 and −1.9 percent by 2026 relative to reference.
    - Tariffs reduce world GDP by 0.6 percent by 2027 and by 1 percent in the long term.
    - Trade-war produces small increase in global inflation ≈ 10 basis points in 2025–26; combined layers disinflationary over time with global headline inflation and policy rates falling close to 40 basis points by 2027.
- Scenario B (fiscal consolidation and reforms in US, higher public spending in Europe, productivity and rebalancing in China):
  - US public debt declines by 25 percentage points of GDP in the long term.
  - Euro area public investment increases by 1 percent of GDP by 2026 (additional); defense spending +0.3 percent of GDP from 2025.
  - China productivity gains: tradables +2 percent and nontradables +0.5 percent through 2030; saving rate decreases by 2 percentage points of GDP.
  - Simulated impacts:
    - Combined effect: global output +0.4 percent by 2026 and +0.8 percent in the long term.
    - US GDP: +0.2 percent in 2025–26; long-run +0.4 percent relative to reference.
    - Global real interest rates fall by 10 basis points in the long run.
    - Euro area GDP up to +1.3 percent by 2026; policy rate +50 basis points; inflation +20 basis points over WEO horizon.
    - China GDP ≈ +1 percent by 2026; potential output ≈ 2 percent above reference by 2030.

### Box 1.2 — Model-Based Assessment of Tariff Actions (GIMF, CP, CFRT)
- Short-run (GIMF variants):
  - World activity hit ranges between 0.4 and 1 percent of world GDP by 2027.
  - Currency depreciations versus dollar largest for euro area and Other Asia; yuan depreciates less under managed exchange rate assumption.
  - Inflation impacts vary by model variant; US inflation can increase close to 50 basis points in some temporary-tariff / full pass-through scenarios.
  - Real activity losses largest for Canada and Mexico, China, and the United States.
- Medium- to long-term (10-year horizon; tariffs assumed permanent):
  - Trade (real exports, percent deviation from no-tariff baseline) — selected entries:
    - United States: GIMF –19.3; CP –21.8; CFRT –27.6
    - China: GIMF –5.4; CP –4.9; CFRT –6.7
    - World: GIMF –5.1; CP –3.1; CFRT –4.2
  - Output (real GDP, percent deviation):
    - United States: GIMF –1.3; CP –0.3; CFRT –0.9
    - China: GIMF –1.1; CP –0.5; CFRT –0.7
    - World: GIMF –0.9; CP –0.2; CFRT –0.4
  - All models show global long-term output losses; differences reflect mechanisms (capital accumulation, sectoral misallocation, firm heterogeneity) and elasticities.

*Italic: Source: IMF staff estimates (Box 1.1 and Box 1.2, Chapter 1, World Economic Outlook: April 2025).*

### AI-Related Value-Added, Electricity Demand, Emissions, and Policy Implications
- IMF-ENV modeling of AI impact (IT-sector TFP increases to match data center power demand 2025–2030):
  - Projected constant annual TFP growth rates: 22 percent (United States), 13 percent (Europe), 10 percent (China).
- Electricity supply increases in AI scenario (2030, relative to baseline):
  - United States: 8 percent, equivalent to 525 TWh.
  - Europe: 3 percent, equivalent to 145 TWh.
  - China: 2 percent, equivalent to 237 TWh.
- Electricity price changes by 2030 under current energy policies:
  - United States: 0.9 percent.
  - Europe: 0.45 percent.
  - China: 0.35 percent.
  - If renewables scale-up and T&D investments are insufficient, price increases could rise up to:
    - China: 5.3 percent.
    - United States: 8.6 percent.
    - Europe: 3.6 percent.
  - Summary quote: “In the United States, ... AI expansion alone could increase electricity prices by up to 9 percent.”
- Sectoral and GDP impacts:
  - Redirecting electricity without further T&D investment could reduce activity in electricity-intensive manufacturing sectors; in the United States, value added growth in these sectors would fall by an average of 0.3 percentage point annually versus baseline, reducing annual GDP growth by 0.1 percentage point.
  - AI shock raises average annual growth rate of global GDP by 0.5 percentage point between 2025 and 2030 (range consistent with previous IMF estimates of 0.1 percentage point to 0.8 percentage point).
  - Alternative energy policies (renewables feed-in tariffs) reduce cumulative GHG emissions impact.
- Emissions and social cost magnitudes:
  - 2030 GHG emissions increases relative to baseline (AI scenario under current energy policies): United States 5.5 percent; Europe 3.7 percent; China 1.2 percent; global average 1.2 percent.
  - Cumulative global GHG emissions increase 2025–2030:
    - AI scenario under current energy policies: 1.7 gigatons (Gt).
    - AI scenario under alternative energy policies: 1.3 Gt (24 percent less than 1.7 Gt).
  - Using median social cost of carbon $39 per ton:
    - Additional social cost for 1.3 to 1.7 Gt CO2-e ≈ $50.7 billion to $66.3 billion.
    - This social cost ≈ 1.3 percent to 1.7 percent of AI-driven increase in real world GDP between 2025 and 2030.
- Policy implications:
  - Energy policy should focus on supply-side responses: scale-up renewables (feed-in tariffs), investments in transmission and distribution capacity, and public investments to upgrade T&D infrastructure.
  - Complementary options: power coupling, small modular nuclear reactors.
  - Distributional concerns: benefits likely to outweigh emissions costs but may be unevenly distributed; coordination needed to manage infrastructure, renewables deployment, and distributional impacts.

*International Monetary Fund, World Economic Outlook, April 2025 — Chapter 1.*

### Annex Table 1.1.4 — Middle East and Central Asia: Key Projections (selected)
- Regional aggregates:
  - Middle East and Central Asia — Real GDP: 2.4 percent (2024), 3.0 percent (2025), 3.5 percent (2026).
  - Consumer Prices: 14.4 percent (2024), 11.1 percent (2025), 9.9 percent (2026).
  - Current Account Balance: 2.0 percent of GDP (2024), –0.1 percent of GDP (2025), –0.4 percent of GDP (2026).
- Oil exporters (aggregate):
  - Real GDP: 2.5 percent (2024), 2.6 percent (2025), 3.1 percent (2026).
  - Consumer Prices: 8.5 percent (2024), 10.3 percent (2025), 10.0 percent (2026).
  - Current Account Balance: 4.2 percent of GDP (2024), 1.4 percent of GDP (2025), 0.9 percent of GDP (2026).
- Selected country projections (2024, 2025, 2026 shown where available; numeric values preserved exactly):
  - Saudi Arabia — Real GDP: 1.3 percent (2024); 3.0 percent (2025); 3.7 percent (2026). Consumer Prices: 1.7 percent (2024); 2.0 percent (2025); 2.0 percent (2026). Current Account Balance: –0.5 percent of GDP (2024); –4.0 percent of GDP (2025); –4.3 percent of GDP (2026). Unemployment: 3.5 percent (2024).
  - Iran — Real GDP: 3.5 percent (2024); 0.3 percent (2025); 1.1 percent (2026). Consumer Prices: 32.6 percent (2024); 43.3 percent (2025); 42.5 percent (2026). Current Account Balance: 2.7 percent of GDP (2024); 0.9 percent of GDP (2025); 1.3 percent of GDP (2026). Unemployment: 7.8 percent (2024); 9.5 percent (2025); 9.2 percent (2026).
  - United Arab Emirates — Real GDP: 3.8 percent (2024); 4.0 percent (2025); 5.0 percent (2026). Consumer Prices: 1.7 percent (2024); 2.1 percent (2025); 2.0 percent (2026). Current Account Balance: 9.1 percent of GDP (2024); 6.6 percent of GDP (2025); 6.4 percent of GDP (2026).
  - Qatar — Real GDP: 2.4 percent (2024); 2.4 percent (2025); 5.6 percent (2026). Consumer Prices: 1.1 percent (2024); 1.2 percent (2025); 1.4 percent (2026). Current Account Balance: 17.2 percent of GDP (2024); 10.8 percent of GDP (2025); 10.3 percent of GDP (2026).
  - Sudan — Real GDP: –23.4 percent (2024); –0.4 percent (2025); 8.8 percent (2026). Consumer Prices: 176.8 percent (2024); 100.0 percent (2025); 63.2 percent (2026). Current Account Balance: –3.5 percent of GDP (2024); –3.6 percent of GDP (2025); –8.6 percent of GDP (2026). Unemployment: 60.8 percent (2024); 62.0 percent (2025); 59.7 percent (2026).
- Memoranda:
  - Caucasus and Central Asia — Real GDP: 5.4 percent (2024); 4.9 percent (2025); 4.3 percent (2026). Consumer Prices: 6.7 percent (2024); 8.1 percent (2025); 7.4 percent (2026).
  - Middle East, North Africa, Afghanistan, and Pakistan — Real GDP: 1.9 percent (2024); 2.6 percent (2025); 3.4 percent (2026). Consumer Prices: 15.7 percent (2024); 11.7 percent (2025); 10.3 percent (2026).
  - Israel (shown for geography; not included in regional aggregates) — Real GDP: 0.9 percent (2024); 3.2 percent (2025); 3.6 percent (2026). Consumer Prices: 3.1 percent (2024); 2.7 percent (2025); 2.0 percent (2026). Current Account Balance: 3.1 percent of GDP (2024); 2.8 percent of GDP (2025); 2.9 percent of GDP (2026). Unemployment: 3.0 percent (2024); 2.9 percent (2025); 3.2 percent (2026).

*Source: IMF staff estimates.*

### 1. Headline Inflation

### ch1 - 1. Headline Inflation

### Headline and Core Inflation (Figure notes and sample)
- Panels 1 and 2 plot the median of a sample of 57 economies that accounts for 78 percent of World Economic Outlook world GDP (in weighted purchasing-power-parity terms) in 2024.
- Vertical axes are cut off at −2 percent and 12 percent.
- The bands depict the 25th to 75th percentiles of data across economies.
- “Core inflation” is the percent change in the consumer price index for goods and services, excluding food and energy (or the closest available measure).
- AEs = advanced economies; EMDEs = emerging market and developing economies.

### Labor Markets (Figure 1.2)
- Unemployment rates and vacancy-to-unemployment ratios are used to show labor market conditions across economies.
- Note: In panel 1, India’s unemployment in urban areas is from Periodic Labour Force Survey data. The “lowest point” is from the period spanning March 2019 to the latest available data.
- In panel 2, “Europe” includes Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, and Sweden. The “peak” is from the period spanning January 2020 to the latest available data.
- EA = euro area.

### Growth Performance and Forecasts (Figure 1.3; Figure 1.5)
- Real GDP growth and the global output gap are presented for AEs, EMDEs, the euro area, the US, and China.
- Income growth and cost-of-living changes are shown relative to 2019:Q4.
- Data labels in the figures use International Organization for Standardization (ISO) country codes.

### China: Real Estate, Demand, and Confidence
- Prolonged weakness in the real estate sector and its ramifications, including those for local government finances, have been key factors weighing on China.
- The homegrown vulnerability depressed domestic demand despite policymaker efforts to tackle property market oversupply and bolster confidence.
- Consumer confidence in China plunged in early 2022 and has not recovered (Figure 1.7).
- Rising trade tensions and new tariffs over the past years have disproportionately affected the Chinese economy.
- The rebalancing of growth drivers from investment and net exports toward consumption has paused amid continuing deflationary pressures and high household saving.
- Construction and real estate activity remains subdued, whereas industry, trade, and transport have been robust.

### Structural Forces, Output Gaps, and Scarring (Figures 1.6, 1.8)
- Cross-country differences in growth rates reflect an interaction of cyclical and structural factors; differences may narrow as cyclical forces dissipate but may not disappear.
- Compared with the GDP level implied by the prepandemic trend, most economies have made up for some damage done by the pandemic (Figure 1.8).
- The United States has been an outlier; scarring has been less pronounced than initially thought (April 2024 WEO), but several economies still lag the prepandemic trend.
- Figure 1.6 panel 1 definitions:
  - Inflation deviation = difference between 2025:Q1 inflation and the central bank’s inflation target.
  - Output gap = 2024 output gap.
- Sample for Figure 1.6 includes G20 economies excluding Argentina, Saudi Arabia, and Türkiye.

### Energy Shock and Trade Effects (Figure 1.9)
- The energy shock following Russia’s invasion of Ukraine had twofold effects, notably on European economies exposed to natural gas disruptions.
- Countries shifted energy sources and increased efficiency but face limits due to import dependence and substitution difficulties.
- The shock strengthened the dollar and intensified stagflationary pressures on commodity importers; the United States was partially insulated by its transition to a net energy exporter.
- Figure 1.9 panels include measures of:
  - Average electricity generation dependent on Russian gas, 2016–21.
  - Total energy supply dependent on natural gas, 2023 (percent).
  - Renewable electricity generation growth, 2021–23.
  - Electricity generation dependent on natural gas, 2023 (percent).
- In panels 2 and 3, “Europe” includes European OECD members plus a set of additional European economies; intra-European trade is excluded from “Europe” values.

### Productivity, Investment, and Industrial Trends (Figures 1.10–1.11)
- Labor productivity growth has declined in recent years in nearly every country besides the United States (Figure 1.10, panel 1).
- The relative strength in US labor productivity growth partly reflects stronger investment (Figure 1.10, panel 2).
- Capital shallowing because of chronic investment weakness can explain roughly half of the productivity growth slowdown in advanced economies since 2010 and about a third of that in emerging market and developing economies.
- Greater labor market flexibility and job-to-job transitions in the United States explain a large share of productivity growth since 2020; furlough programs in other countries have typically been associated with slower productivity growth.
- Industrial production plunged in all countries at the onset of the pandemic; recoveries diverged:
  - Production has soared in China and expanded in smaller EU economies and the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, Thailand).
  - Production has struggled to return to prepandemic levels in Japan and the largest EU countries.
  - Industrial production in the United States has recovered more strongly than many advanced economy peers.
- Figure 1.10 notes:
  - Labor productivity is calculated on a per-worker basis.
  - Private gross fixed capital formation index uses 2014 = 100; dashed lines denote the 2014–19 trend.
- Figure 1.11 notes:
  - Industrial production trends are three-month moving averages; “EU4” = France, Germany, Italy, Spain; “Other EU” = all other EU countries; ASEAN-5 defined above.

### Demographics and Resource Reallocation
- Many countries are crossing demographic turning points with declining shares of working-age populations; Germany, Italy, Japan, and China are ahead, while the United States is not far behind but has stronger immigration flows that have helped shield labor markets.
- The war-related energy shock and persistent disruptions could impede productivity by obstructing necessary reallocation of resources across sectors.

### Diminished Policy Space and Fiscal Conditions (Figure 1.12)
- Much of available policy space has been exhausted in many countries due to large fiscal support packages during the pandemic and at the onset of the war in Ukraine.
- Fiscal space is much tighter than a decade ago; the fiscal adjustment required to stabilize debt ratios is at a historic high (Figure 1.12, panel 1).
- Debt service as a fraction of fiscal revenue is rising (Figure 1.12, panel 2), reflecting divergent fiscal stances, growth/inflation patterns, and debt maturities.
- Effective rates are likely to surpass prepandemic levels as debt rolls over, notably for low-income countries and some EMDEs.
- Real long-term government bond yields have been on the rise after more than a decade of very low rates (Figure 1.12, panel 3), surging significantly in recent months and persisting due to a global rise in term premiums.
- In the United States, increased issuances, higher expected inflation, and risk premiums contributed to rising term premiums until mid-January, when long-term rates moderated; recent tariff announcements pushed them back up again.
- Figure 1.12 notes:
  - Panel 1 shows current three-year adjustment need versus historical adjustment; IQR refers to interquartile range of three-year primary balance adjustments over 2000–19.
  - Current adjustment need = difference between 2028 debt-stabilizing primary balance (DSPB) and the 2025 primary balance excluding other flows.
  - Panel 3 uses long-term inflation expectations from Consensus Forecasts.
  - Category abbreviations: EMMIEs = emerging market and middle-income economies; LIDCs = low-income developing countries; AEs = advanced economies.

### Inflation Expectations, Yields, and Global Imbalances (Figure 1.13–1.14)
- Inflation expectations now exceed central bank targets in most advanced economies and EMDEs; group averages between 2017 and 2021 were at or below target.
- Yields remain sensitive to inflation surprises and diminishing fiscal space.
- In economies operating at or close to potential and facing inflationary pressures (including from new trade policies and exchange rate movements), central banks have less leeway to “look through” negative supply shocks.
- Rising geopolitical tensions and widening domestic imbalances—weak demand in China and strong demand in the United States—have renewed concerns about global imbalances.
- Since 2016–17, China and the United States have diversified trading partners, with some decoupling in export and import linkages and microeconomic trade rerouting and production relocation among emerging markets in Asia.
- Europe has increased imports from China and the United States in different sectors and is exporting more to the United States in other sectors, increasing Europe’s trade exposure to both China and the United States.

*Source: ch1 - 1. Headline Inflation (chapter excerpt) — World Economic Outlook: A Critical Juncture Amid Policy Shifts, International Monetary Fund | April 2025*

### 1. Cross-Country Inflation Expectations

### 1. Cross-Country Inflation Expectations

### Cross-country inflation expectations (next 12 months)
- Metric: Percentage point deviation from target (next 12 months).
- Sample in panel 1: 30 advanced economies (AEs) and 31 emerging market and developing economies (EMDEs).
- Note on boxplots: horizontal lines = medians; box limits = first and third quartiles; whiskers = max/min within 1.5 × interquartile range.
- In panel 2, “one year” is based on March 2025 data. Data labels use ISO country codes. EA = euro area.

### Consensus inflation expectations (deviation from central bank target)
- Data series shown across selected economies and regions (ISO country codes displayed in source figure; examples in text include JPN, ZAF, KOR, FRA, AUS, USA, DEU, ITA, EA, CAN, GBR, IND, BRA, MEX, EU, China).
- Regional labels used in figure: Emerging Asia, LAC, Russia.

### Key statistics from global consumer price assumptions (from Table 1.1)
- World Consumer Prices: 5.7 (2024), 4.3 (2025), 3.6 (2026).
- Advanced Economies inflation: 2.6 (2024), 2.5 (2025), 2.2 (2026).
- Emerging Market and Developing Economies inflation: 7.7 (2024), 5.5 (2025), 4.6 (2026).
- Assumed inflation rates for 2025 and 2026 (selected): euro area 2.1 percent and 1.9 percent; Japan 2.4 percent and 1.7 percent; United States 3.0 percent and 2.5 percent.

### Relevant notes on methodology
- Excludes Venezuela for world consumer prices (see Statistical Appendix).
- Real effective exchange rates assumed to remain constant at levels prevailing during March 6, 2025–April 3, 2025.

*Italic — Source: ch1 - 1. Cross-Country Inflation Expectations (chapter content), April 2025 World Economic Outlook (IMF).*

### 1.8 percent in 2024 to 1.4 percent in 2025 and

### ch1 - 1.8 percent in 2024 to 1.4 percent in 2025 and

### Global growth outlook
- World output projections: 2.8 percent in 2024, 2.3 percent in 2025, and 2.4 percent in 2026.
- The 2025 projection is 0.5 percentage point lower relative to the January 2025 WEO Update.
- Forecast drivers: greater policy uncertainty, trade tensions, softer demand outlook, and tariffs weighing on 2026 growth.

### Advanced economies — projections and revisions
- Aggregate advanced economies: 1.8 percent in 2024, 1.4 percent in 2025, and 1.5 percent in 2026; differences from January 2025 WEO Update: –0.6 (2025) and –0.3 (2026).
- United States:
  - Projected growth: 1.8 percent in 2025 (1 percentage point lower than 2024).
  - Revision: 0.9 percentage point lower than the January 2025 WEO Update.
  - Downward drivers: greater policy uncertainty, trade tensions, softer consumption growth; tariffs expected to weigh on 2026, projected at 1.7 percent.
- Euro area:
  - Projected growth: 0.8 percent in 2025 and 1.2 percent in 2026.
  - Downside drivers for 2025: rising uncertainty and tariffs.
  - 2026 support: stronger consumption from rising real wages and projected fiscal easing in Germany following major changes to its fiscal rule (the “debt brake”).
  - Spain: 2025 projection 2.5 percent, an upward revision of 0.2 percentage point from January 2025 WEO Update (large carryover from 2024 and reconstruction activity following floods).
- Other notable advanced economy revisions:
  - Canada: downward revision of 0.6 percentage point for 2025 and 0.4 percentage point for 2026; drivers include new tariffs on exports to the United States, heightened uncertainty, and geopolitical tensions.
  - Japan: 2025 projection 0.6 percent, a downgrade of 0.5 percentage point from January; tariffs announced on April 2 and associated uncertainty offset expected private consumption strengthening.
  - United Kingdom: 2025 projection 1.1 percent, lower by 0.5 percentage point versus January; factors include smaller carryover from 2024, recent tariff announcements, increase in gilt yields, and weaker private consumption amid higher inflation from regulated prices and energy costs.

### Emerging Market and Developing Economies — projections and revisions
- Aggregate EMDEs: 4.1 percent in 2024, 3.7 percent in 2025, and 3.9 percent in 2026; revisions versus January 2025 WEO Update: –0.6 (2025) and –0.4 (2026).
- Emerging and developing Asia:
  - Projected growth: 5.2 percent in 2024, 4.3 percent in 2025, and 4.4 percent in 2026; revisions versus January: –0.6 (2025) and –0.5 (2026).
  - China: 2025 GDP growth revised downward to 4.0 percent (from 4.6 percent in January 2025 WEO Update); 2026 revised to 4.0 percent (from 4.5 percent), reflecting recently implemented tariffs offsetting a stronger 2024 carryover and budget fiscal expansion.
  - India: 2025 projection 6.2 percent, 0.3 percentage point lower than January 2025 WEO Update; supported by private consumption, particularly rural, but affected by higher trade tensions and global uncertainty.
- Latin America and the Caribbean:
  - Projected growth: 2.2 percent in 2024, 1.9 percent in 2025, and 2.2 percent in 2026.
  - Revisions versus January 2025 WEO Update: –0.6 percentage point for 2025 and –0.4 percentage point for 2026.
  - Mexico: downgrade by 1.7 percentage points for 2025 and 0.6 percentage point for 2026; drivers include weaker-than-expected activity in late 2024/early 2025, US-imposed tariffs, uncertainty, geopolitical tensions, and tightened financing conditions.
- Emerging and developing Europe:
  - Projected growth: 3.3 percent in 2024, 2.1 percent in 2025, and 2.3 percent in 2026.
  - Russia: growth falling from 4.1 percent in 2024 to 1.5 percent in 2025 and 0.9 percent in 2026; 2025 slightly revised upward versus January due to stronger-than-expected 2024 outturns.
  - Türkiye: projected to bottom out in 2025 at 2.7 percent and accelerate to 3.2 percent in 2026 due to recent monetary policy pivots.
- Middle East and Central Asia:
  - Projected growth: 2.0 percent in 2024, 2.9 percent in 2025, and 3.6 percent in 2026.
  - Outlook: recovery as disruptions to oil production and shipping dissipate and conflict impacts lessen; revisions downward versus January reflect more gradual oil production resumption, persistent spillovers from conflicts, and slower structural reform progress.
- Sub-Saharan Africa:
  - Projected growth: 3.7 percent in 2024, 3.7 percent in 2025, and 4.2 percent in 2026.
  - Nigeria: 2025 revised downward by 0.2 percentage point and 2026 by 0.3 percentage point owing to lower oil prices.
  - South Africa: 2025 revised downward by 0.5 percentage point and 2026 by 0.3 percentage point owing to weaker-than-expected 2024 outturn and heightened uncertainty.
  - South Sudan: downward revision of 31.5 percentage points for 2025 due to delay in resumption of oil production from a damaged pipeline.

### Inflation forecast
- Global headline inflation: projected to decline to 4.3 percent in 2025 and to 3.6 percent in 2026.
- Advanced economies: inflation converging back to target, reaching 2.2 percent in 2026.
- Emerging market and developing economies: inflation declines to 4.6 percent in 2026.
- Revisions since January 2025 WEO Update:
  - Global inflation forecast is slightly higher overall.
  - Advanced economies: 2025 inflation forecast revised upward by 0.4 percentage point since January.
  - United States: 2025 inflation forecast revised upward by 1.0 percentage point since January; drivers include stubborn services price dynamics, uptick in core goods prices (excluding food and energy), and supply shock from recent tariffs.
  - United Kingdom: 2025 inflation forecast revised upward by 0.7 percentage point since January; driven primarily by one-off regulated price changes.
  - Euro area: forecast unchanged versus January.
  - Emerging and developing Asia: 2025 inflation forecast revised downward by 0.5 percentage point versus January; China expected to remain subdued.
  - Emerging and developing Europe: Russia and Ukraine have upward revisions for 2025 and Russia also for 2026, contributing to overall upward revisions of 1.5 percentage points in 2025 and 1.0 percentage point in 2026 for the subregion.
  - Latin America and the Caribbean: mixed revisions lead to an overall revision for 2025 of –0.3 percentage point.

### Medium-term outlook and trade
- Five-year-ahead growth forecast: 3.2 percent (below the 2000–19 historical average of 3.7 percent).
- Sluggish medium-term dynamics driven in part by demographics and population aging, which weigh on productivity, labor force participation, and growth.
- World trade growth: expected to slow to 1.7 percentage point in 2025; this is a downward revision of 1.5 percentage point since the January 2025 WEO Update, reflecting increased tariff restrictions and waning cyclical effects that had raised goods trade.
- Global current account balances: expected to narrow somewhat over the medium term as the widening in 2024 wanes; creditor and debtor stock positions increased in 2024 and are expected to moderate slightly over the medium term.

### Risks to the outlook — tilted to the downside
- Overall risk tilt: downside in both the short and medium term.
- Escalating trade measures and prolonged trade policy uncertainty:
  - A ratcheting up of a trade war would negatively affect world GDP, with magnitude varying across countries; directly targeted countries like China and the United States and many Asian and European economies would be most affected.
  - Some countries could gain by consolidating trade networks and reconfiguring global value chain positions, but adverse effects can accumulate over time.
  - Potential consequences include fragmented FDI flows, reduced capital accumulation, resource misallocation, loss of knowledge hubs, contraction in bank credit, and financial stability risks.
- Inflationary implications of a trade war:
  - Primary channel: rising import prices.
  - Amplifying factors: more than 80 percent of trade invoicing in US dollars; potential US dollar appreciation; inflation expectations above central bank targets; restrictions on commodities with concentrated production and limited substitution (critical minerals, highly traded agricultural goods).
  - Distributional effects: tariffs tend to raise tradable goods prices, disproportionately affecting poor households and retirees; tariffs can increase returns to capital over labor, benefiting the wealthy.
- Uncertainty effects on investment and demand:
  - Increased trade-policy uncertainty can delay investment projects and reduce global investment.
  - Evidence: trade uncertainty estimated to have reduced US investment by approximately 1.5 percent in 2018.
  - Persistent uncertainty undermines confidence, curtails investment, reduces demand, and can lead to US dollar appreciation that transmits inflationary pressures to countries with high pass-through from currency depreciation.
- Recent dynamics:
  - In Q1 2025, new restrictive measures announced increased by 16 percent relative to December 2024, with actions ratcheting from April 2 onward.
  - Firms’ concerns about fragmentation spiked with the escalation in restrictive measures.

*Source: IMF staff estimates, World Economic Outlook, April 2025.*

### 1. Trade-Restrictive Measures

### ch1 - 1. Trade-Restrictive Measures

### Trade policy developments and indicators
- Number of measures: charted (counts up to 3,500 in figure axis); data are based on a count of measures and include adjustment for reporting lags.
- Fragmentation keywords in earnings calls: indices (2013–15 = 100) measuring the average number of sentences, per thousand earnings calls, that mention at least one of the keywords: deglobalization, reshoring, onshoring, nearshoring, friend-shoring, localization, regionalization.
- Sources cited for these indicators: Global Trade Alert; Refinitiv Eikon; and IMF staff calculations.

### Spillovers from US dollar appreciation
- Effect quantified using impulse responses from the IMF External Sector Report 2023 for a 10 percent appreciation in the nominal US dollar index with 90 percent confidence intervals.
- Real GDP measured in national currencies at constant prices; effects shown separately for "Advanced economies" and "Emerging market economies."
- Definition note: “Advanced economies” exclude countries with weights in the US dollar index that are larger than 4 percent in 2020: Canada, France, Germany, Ireland, Italy, Japan, Switzerland, and the United Kingdom.
- EMDE inflation estimates: based on Carrière-Swallow and others’ (2021) bilateral pass-through and foreign exchange depreciation against the US dollar between mid-September 2024 and the beginning of January 2025.
- Panel variables referenced: "12-month pass-through to inflation from US dollar depreciation" and "Pass-through elasticity (right scale)."
- Country labels use ISO country codes; sample includes EMDEs such as TUR, ZAF, BRA, IDN, POL, ROU, HUN, MEX, CHL, IND, COL (labels visible in figure).

### Macro-financial risks and channels
- Policy-uncertainty-driven surge in risk aversion and a decline in US growth prospects might lead to a depreciation of the US dollar; a disorderly and large depreciation could bring additional financial market volatility.
- If inflation persists or regains upward momentum because of new policies, central banks may maintain interest rates at higher levels than currently anticipated, resulting in cross-country interest rate differentials that could trigger capital outflows and tighter financial conditions, especially in emerging market and developing economies.
- Financial market risks may be compounded by:
  - future corporate earnings failing to meet expectations;
  - large and unpredictable policy shifts;
  - renewed geopolitical risks.
- Balance of payments crises risk: worsening global financial conditions and broader disruptions could trigger crises in small countries with limited market access, high refinancing needs, and weak negotiation capacity.
- Commodity exporters face amplified risks amid a continued decline in commodity prices, particularly oil and copper, which typically serve as indicators of an impending recession by signaling a slowdown in industrial activity in importers such as China.
- A deeper financial market correction could be triggered by weaker-than-expected US growth and could reverberate through highly leveraged positions in nonbank financial institutions and firms with high near-term refinancing needs.
- Excessive rollback of financial regulations could lead to boom-bust dynamics, negative repercussions for household wealth, systemic stress, and adverse spillovers across the global economy.
- In Europe, market correction risk is elevated if peace negotiations in Ukraine fail to reach a lasting resolution.
- Rising long-term interest rates and persistent exchange rate volatility could:
  - trigger capital and FDI outflows from emerging market and developing economies;
  - exacerbate capital imbalances and misallocation;
  - constrain fiscal space and exacerbate fiscal sustainability concerns, potentially leading to a debt spiral dynamic.

### Social, labor, and cooperation risks
- Rising social discontent: the legacy of the cost-of-living crisis combined with reduced medium-term growth prospects may exacerbate polarization and social unrest, hindering necessary reforms for growth; risk of unrest pronounced in Africa and parts of Asia.
- Resurgence in food and energy price inflation—driven by commodity market fragmentation or intensification of climate-related disasters—could worsen living conditions and heighten food security concerns, particularly in low-income countries.
- International cooperation challenges: scaling back climate adaptation and international aid would risk making past investments ineffective and undermine progress toward a greener and more resilient economy; sudden withdrawal of support would deteriorate living and health conditions in low-income and fragile countries and could worsen current accounts, decline foreign reserves, pressure exchange rates and prices, and lower consumption and investment.
- Labor supply gaps: retrenchment of foreign-worker flows to advanced economies would provide a small boost to incomes locally but reduce output in recipient countries and globally in the long term, posing fiscal sustainability risks and hindering potential growth where immigrants are well integrated.

### Natural disasters: frequency and costs
- Number of natural disasters: three-year moving average shown in a stacked-area chart by type (Floods, Wildfires, Droughts, Storms, Extreme temperatures).
- Costs of natural disasters: shown in billions of US dollars, CPI adjusted, across years (panels plot values up to 400 on the axis).

### Downside shock magnitudes and conflict impacts
- The economic impact of war: studies show the “war tax” on growth can reach 30 percent of GDP, contributing to inflation rates as high as 15 percent (Federle and others 2024).
- Negative spillovers from conflicts are estimated to be on average between 5 percent and 10 percent of GDP over the five to seven years following the onset of conflict (Chapter 2, April 2024 Regional Economic Outlook: Middle East and Central Asia).
- A ceasefire in Ukraine could raise growth in the region through a rebound in consumer confidence and reduction in energy prices, particularly in Europe, although countries that invested in alternative infrastructures or energy sources to manage shortages may experience negative spillovers if reversals prevent expected returns.

### Upside scenarios
- Next-generation trade agreements: regional, plurilateral, and multilateral agreements (including nondiscriminatory agreements covering digital and services trade and investment) could increase investment, productivity, potential growth, and resilience to external shocks.
- Mitigation of conflicts: cessation of hostilities and reconstruction efforts could boost GDP growth directly and through positive spillovers to neighboring countries.
- Structural reform momentum: generalized acceleration of structural reforms—streamlining regulations, reducing red tape, integrating financial, labor, and product markets—could unlock market entry, increase competition, elevate productivity, and raise potential growth; deepening the EU single market and strengthening the Capital Markets Union are highlighted examples.
- Growth engine from artificial intelligence (AI): expected significant annual reduction in AI usage costs and future technological advancements could boost productivity and consumption, with knowledge spillovers across industries; gains could materialize without adverse employment effects if accompanied by policies that upgrade regulatory frameworks and support labor reallocation (Cazzaniga and others 2024).

### Policy recommendations and priorities
- Restore confidence and stability, reduce imbalances, and sustainably lift growth through:
  - Reducing policy-induced uncertainty and resolving trade tensions to stabilize expectations, avoid investment distortions, and reduce volatility.
  - Calibrating monetary and prudential policies carefully in the short term to maintain price and financial stability.
  - Gradually rebuilding fiscal space to manage increased public spending needs and build buffers against sizable and recurrent future shocks.
  - Delivering on structural reforms to uplift medium-term growth prospects while prudently harnessing technological advances.
- Managing trade tensions and elevated trade policy uncertainty:
  - Urgently resolve trade tensions and promote clear and transparent trade policies.
  - Pursue pragmatic cooperation and deeper economic integration—nondiscriminatory unilateral reductions of trade barriers or regional, plurilateral, or multilateral agreements can expand trade and mitigate distortions.
  - Recognize that broad subsidies generate large fiscal costs and additional distortions; targeted industrial policies can be appropriate in specific cases but are costly and prone to government failure.
  - Subject industrial policy programs to comprehensive cost-benefit analysis; target industrial policies narrowly to sectors with well-identified externalities or market failures.
  - Encourage cooperation regarding industrial policy approaches among partners to minimize distortions.

*Source: ch1 - 1. Trade-Restrictive Measures, World Economic Outlook: A Critical Juncture Amid Policy Shifts, International Monetary Fund | April 2025 (chapter PDF).*

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### CHAPTER 1 GLOBAL PROSPECTS AND POLICIES

### International cooperation
- International cooperation, including cooperation through regional and cross-regional groups, is essential to sustain global growth, tackle common problems, and mitigate cross-country spillovers.
- Cooperation areas highlighted: trade, industrial policy, international taxation, climate, development and humanitarian assistance.
- International tax cooperation can diminish harmful tax competition and prevent a race to the bottom in global corporate taxes.
- Multilateral assistance is increasingly important for low-income countries if bilateral foreign aid flows decline.

### Maintaining price and financial stability — monetary policy
- Central banks should calibrate monetary policy to country-specific circumstances amid multifaceted shocks, including trade policy shocks and negative wealth effects from the April 2025 asset price correction.
- Monitor interplay of sectoral supply pressures and sectoral demand; a steepening of sectoral supply curves could trigger renewed inflationary pressures.
- Where near-term inflation risks are tilted to the upside or inflation expectations are rising, future cuts to the policy rate should remain contingent on evidence that inflation is heading decisively back toward target.
- If growth is declining or labor markets are softening while inflationary pressures and inflation expectations are clearly returning toward target, maintaining a constant nominal policy rate will, over time, result in a restrictive real policy stance; in these circumstances, gradual reductions in the policy rate to move closer to the neutral rate are appropriate.
- Elevated uncertainty increases the premium on clear communication to enhance predictability.

### Monetary–financial stability trade-offs
- Elevated uncertainty intensifies the trade-off between anchoring inflation expectations and safeguarding financial stability.
- Tightening to stabilize inflation expectations may exacerbate financial system vulnerabilities and complicate operations for financial institutions.
- Authorities must balance maintaining stable inflation expectations with ensuring financial stability, particularly amid financial market volatility.

### Mitigating disruptive foreign exchange volatility
- Persistent trade policy uncertainty, cross-country divergence in monetary policy normalization, and a more volatile currency outlook could amplify financial market volatility and trigger disruptive capital outflows.
- Countries with well-functioning and deep FX markets and low levels of foreign-currency debt: exchange rate flexibility and raising policy rates are advisable; use rapid, decisive, well-designed liquidity support as needed.
- Countries with shallow FX markets or sizable foreign-currency-denominated debt: abrupt tightening of global financial conditions may trigger disruptive FX volatility and rising risk premiums; temporary foreign exchange interventions or capital flow management measures could be appropriate, complemented by macroprudential measures and financial market reforms to deepen domestic capital markets over the medium term.
- The IMF’s Integrated Policy Framework provides guidance tailored to country-specific conditions on appropriate policy responses.

### Safeguarding financial stability — prudential policy
- High uncertainty and financial market volatility increase the importance of robust prudential policies.
- Jurisdictions under financial market stress should release available macroprudential buffers to support credit provision and avoid broad tightening of financial conditions and cascades of business failures.
- If stress reaches crisis proportions, authorities should be ready to deploy liquidity and fiscal instruments to avoid excessive deleveraging and damage to the real sector.
- Maintain macroprudential policies and Basel III reforms when implementing regulatory changes; enhance reporting and strengthen policies to mitigate vulnerabilities in nonbank financial institutions.

### Rebuilding fiscal buffers and fiscal policy guidance
- Priority: restore fiscal space and put public debt on a sustainable path while meeting spending needs for national and economic security through credible medium-term fiscal consolidation with decisive yet growth-friendly adjustments.
- Greater fiscal discipline helps contain borrowing costs and guards against risks from higher term premiums and upside inflation risks.
- Fiscal adjustment plans should focus on credibly rebuilding buffers, reprioritizing expenditures, and boosting fiscal revenues, including broadening tax bases.
- Permanent increases in spending should be financed with revenues; greater focus on public sector spending efficiency may be warranted.
- Where negative demand shocks from recent tariffs and trade policies are large, automatic stabilizers can dampen impact.
- New discretionary measures should be well targeted, temporary, and include clear sunset clauses; deployed only for households, firms, or industries affected by severe trade dislocations.

### Fiscal sustainability and institutional measures
- Many countries’ current fiscal policies fall short of ensuring that debt has a high probability of stabilizing (see April 2025 Fiscal Monitor).
- Credible fiscal adjustment plans require realistic assumptions about growth, debt-servicing costs, revenue mobilization, and spending needs.
- Safeguard debt sustainability by protecting fiscal rules and fiscal transparency, including contingent liabilities and debt-creating flows outside the fiscal deficit.
- Binding legislation and clear contingencies for responses to unexpected changes in growth, interest rates, or spending needs can bolster credibility.
- For countries in or at high risk of debt distress or potential noncompliance with fiscal regulations, achieving sustainability may require fiscal consolidation and debt restructuring.
- Progress in international sovereign debt resolution frameworks, including the Group of Twenty (G20) Common Framework and consensus at the Global Sovereign Debt Roundtable (GSDR), will make debt restructuring (when necessary) less costly.

### Targeted fiscal reforms and protecting the vulnerable
- In advanced economies: options include expenditure reprioritization, entitlement reforms, and revenue increases through indirect taxes or removal of inefficient incentives, depending on circumstances (April 2025 Fiscal Monitor).
- Emerging market and developing economies: greater scope to strengthen domestic revenue mobilization by broadening tax bases, reducing informality, and enhancing revenue administration capacity.
- Across countries: scope for reducing inefficient subsidies; gradual reforms announced and implemented during favorable macroeconomic conditions, combined with redistribution policies, can enhance public support (Chapter 2 of the April 2025 Fiscal Monitor).
- Fiscal adjustments should protect growth and vulnerable groups: prioritize high-quality public investments in infrastructure and digitalization, complement spending with structural reforms to labor markets and regulation, and protect the poor and vulnerable to cushion inequality impacts.
- Eliminate poorly targeted subsidies, such as energy subsidies, to reduce distributional impacts and contribute toward climate objectives.
- Use timely, targeted, temporary support where essential; ensure proper targeting, automatic sunset clauses, and mitigation of fiscal and political economy risks; adjust the fiscal envelope responsibly based on country-specific fiscal space.

### Reinvigorating medium-term growth — structural reforms
- Potential growth remains subdued and cost-of-living pressures persist post-pandemic; lifting medium-term growth is essential to raise living standards and ease macroeconomic trade-offs.
- Broad-based structural reforms in labor markets, education, regulation and competition, and financial sector policies can lift productivity and potential growth and support job creation.
- Technological progress, including digitalization and AI, can enhance productivity and potential growth.
- Increase female labor force participation to raise labor supply.
- Policies to improve human capital and labor outcomes of older workers (health, continued training and development) can improve labor market attachment and productivity; well-designed labor interventions can raise effective retirement age.
- Increased migration flows can attenuate demographic challenges and mildly boost growth; requires swift labor market integration of migrants and good skills matching with job opportunities.
- Regulatory frameworks and investments in digital infrastructure and a digitally competent workforce are critical to sharing gains from new technologies broadly.
- Targeted deregulation can ease constraints on entrepreneurship, investment, and innovation; estimates suggest sizable distortions and real GDP costs averaging 0.8 percent of annual GDP for a set of European countries (Pellegrino and Zheng 2024).
- Maintain prudential regulations and safeguard financial stability when reducing bureaucracy; avoid premature or uncoordinated deregulation that could increase financial stability risks.

### Financial access, markets, and stakeholder engagement
- Labor market and regulatory reform should be complemented with policies to alleviate financial constraints: increase financial accessibility and reduce barriers to efficient capital allocation.
- Removing internal trade barriers and advancing capital market reforms are critical for business dynamism, especially for innovation-intensive firms lacking tangible collateral.
- To secure social acceptability of reforms, use participative processes, strengthen public understanding of reform proposals, and engage stakeholders throughout the reform process.

### Climate policies
- Addressing climate change requires a well-designed policy mix that can generate macroeconomic benefits, including low-carbon, resilient growth.
- Policy mix includes investments in renewable and energy-efficient technologies, economy-wide measures such as carbon pricing, complemented by fiscal incentives, technical assistance, and financial support for adaptation projects in low-income countries.
- Transitioning from fossil fuels to renewables can improve energy security, benefit employment, and reduce balance of payments risks.

### Risk assessment — confidence bands and scenario analysis
- Two complementary assessments of global risk:
  - G20 model-derived confidence bands around the WEO reference forecast using historical shock resampling (Andrle and Hunt 2020); adjusted to align with growth-at-risk in the April 2025 GFSR.
  - GIMF model simulations of two scenarios: Scenario A — widening global imbalances and fall in global output relative to the reference forecast; Scenario B — narrowing global imbalances and increase in global output relative to the reference forecast.
- Growth distributions are skewed to the downside; inflation distributions are somewhat skewed to the upside.
- The probability of a recession occurring in 2025 is now assessed at 37 percent, higher than in the October 2024 WEO.
- Recession risk definition: probability that 2025 annual growth will be below 1.2 percent, consistent with a shallow recession starting in the third quarter.
- The probability of a short-lived US recession in 2025, by this criterion, was assessed to be about 25 percent at the time of the October 2024 WEO.

*Source: CHAPTER 1 GLOBAL PROSPECTS AND POLICIES — World Economic Outlook, April 2025 (PDF).*

### 1. US GDP Growth

### 1. US GDP Growth

### Risk Assessment Surrounding the Reference Forecast
- The risk that 2025 US headline inflation will rise above 3.5 percent is now more than 30 percent, compared with 13 percent in October.
- The probability that the average 2025 three-month Treasury bill rate will rise above 4.5 percent for 2025 is about 33 percent (up from 27 percent in October).
- The probability that global growth in 2025 will fall below 2 percent is assessed at close to 30 percent (vs. 17 percent in October).
- The probability that global headline inflation will rise above 5 percent is estimated at about 31 percent (slightly lower than 34 percent in October).

### Scenario Analysis — Overview
- Models used: the IMF’s Global Integrated Monetary and Fiscal (GIMF) model and two trade models based on Caliendo and Parro (CP) and Caliendo, Feenstra, Romalis, and Taylor (CFRT).
- The GIMF version used here has 10 regions (including China, the United States, and the euro area) for scenario simulations.
- Scenarios assume endogenous monetary policy responses, floating exchange rates in most regions, and automatic stabilizers operating on the fiscal side.

### Scenario A — Layers and Assumptions
- Global divergences (three components):
  - Renewal of the US Tax Cuts and Jobs Act (TCJA) for 10 years, including individual and business taxes, the child tax credit, and expensing of investment, totaling about 11 percent of GDP over 2025–34. Accompanying deficits are back-loaded, reaching about 1.4 percent of GDP by 2027. The renewal assumes a small additional temporary increase in US inflation expectations.
  - Lower productivity in Europe: total factor productivity growth declines by 0.2 percentage point per year over five years, relative to the reference forecast, starting in 2025; the decline is concentrated in the tradables sector.
  - Weaker domestic demand in China: consumption and investment fall relative to the reference forecast by 0.7 and 0.5 percent, respectively, in 2025; the decline builds over 2026–27 and fades after that.
- Trade war:
  - Incorporates an additional 50 percentage point increase in tariffs on all China-US trade in both directions relative to the reference forecast.
  - Countries other than China respond tit for tat to the April 2 announcement, raising tariffs on imports from the United States by the same rate.
  - The United States responds by doubling the rate announced on April 2 to all countries other than China.
  - Net result: an increase of about 18 percentage points in the effective tariff rate on both US goods imports and US goods exports, relative to the current reference forecast.
- Increase in global uncertainty:
  - Uncertainty shock equivalent to a three-standard-deviation increase in the global economic policy uncertainty measure in Davis (2016), about 50 percent larger than the spike observed in 2018–19.
- Tighter financial conditions:
  - Asset prices decline globally in 2025, with the largest decline in the US (about 5 percent on average for the year) and in emerging markets (about 3 percent).
  - Sovereign and corporate premiums in emerging markets excluding China increase by 50 basis points; corporate premiums in advanced economies and China increase by 25 basis points.
  - The tightening in financial conditions lasts for two years.

### Scenario A — Simulated Impacts
- Global and regional effects (percent deviations from the reference forecast):
  - The combined effect of the layers in scenario A is a decrease in global GDP of about 1.3 percent by 2025 and 1.9 percent by 2026, relative to the reference forecast.
  - Tariffs reduce world GDP by 0.6 percent by 2027 and by 1 percent in the long term.
- Inflation and policy rates:
  - The trade war produces a small increase in global inflation of about 10 basis points in 2025–26 (direct effect offset by reduced activity); inflation falls below the reference forecast thereafter.
  - The increase in global uncertainty reduces global investment by close to 2 percent in 2025 and 3 percent in 2026, contributing to a moderate decrease in global inflation and policy rates of close to 20 basis points by 2026.
  - The combined layers are disinflationary over time, with global headline inflation and policy rates falling by close to 40 basis points by 2027.
- United States specific:
  - The global divergences layer is somewhat stimulative for the US because of the TCJA renewal: over 2025–26, the layer adds 20–30 basis points to US headline inflation and 30 basis points to the US policy rate and results in a modest appreciation of the dollar.
  - The trade war and other layers lead to a worsening of the US current account balance (the deficit worsens relative to the reference forecast).
- Euro area and China:
  - Lower productivity in Europe reduces euro area GDP by about 0.3 and 0.5 percent in 2025 and 2026, respectively; impact on inflation and policy rates is close to zero.
  - Lower domestic demand in China subtracts 0.3 and 0.5 percent from China’s reference forecast GDP in 2025 and 2026, respectively, and reduces China’s headline inflation by an additional 20–30 basis points in 2025–26 (effects amplified by limited renminbi adjustment).
- Other outcomes:
  - The increase in global uncertainty layer reduces global output by closer to –0.5 percent of the reference forecast in 2025 and –0.8 percent in 2026.
  - The tighter financial conditions layer subtracts 0.5 percent from global GDP in 2025.

### Scenario B — Layers and Assumptions
- Lower US government debt and reforms:
  - Series of fiscal reforms to reduce inefficiencies from poorly targeted tax expenditures, shift from labor to consumption taxes, and contain health care costs; government consumption permanently reduced.
  - Reforms and lower interest payments lead to a gradual decline of the overall fiscal deficit, which reaches 1 percent of GDP after five years.
  - The US public debt declines by 25 percentage points of GDP in the long term.
- Higher public spending in Europe:
  - Public investment increases in the euro area starting in 2025, reaching 1 percent of GDP in additional spending by 2026, stays at that level until 2030, and remains permanently higher by 0.4 percent after that to sustain a higher stock of public capital.
  - Includes a permanent increase in defense spending of 0.3 percent of GDP, starting in 2025.
  - Over the WEO horizon, about two-thirds of the surge in spending is financed by higher deficits; from 2030 onward, spending reallocation gradually returns debt ratios to reference forecast levels.
- Productivity gains and rebalancing in China:
  - Structural reforms increase market dynamism and strengthen the social safety net.
  - Productivity in tradables and nontradables increases by about 2 and 0.5 percent, respectively, through 2030.
  - The saving rate decreases by 2 percentage points of GDP over the same period.

### Scenario B — Simulated Impacts
- Global and regional effects (percent deviations from the reference forecast):
  - The combined effect of the layers in scenario B is an increase in global output of about 0.4 percent by 2026 and 0.8 percent in the long term.
  - Long-run effect is positive for US and world GDP by 0.4 and 0.2 percent relative to the reference forecast, respectively.
- United States specific:
  - US fiscal reforms have a positive short-run effect on US activity, with GDP increasing by 0.2 percent in 2025–26.
  - Inflation net of tax effects is slightly higher than in the reference forecast; policy rates are slightly higher.
  - The reduction in US public debt leads to a gradual decline in US and global real interest rates, which decrease by 10 basis points in the long run.
  - The United States experiences an increase in its current account balance (lower deficits than in the reference forecast).
- Euro area:
  - Higher public spending raises euro area GDP by up to 1.3 percent by 2026 relative to the reference forecast.
  - Inflation increases by more than 20 basis points over the WEO horizon, with the euro area policy rate increasing by about 50 basis points.
  - The buildup in public capital raises productivity and potential output permanently; current account balance decreases (lower surplus).
- China:
  - Productivity gains and rebalancing raise China’s GDP by about 1 percent by 2026 relative to the reference forecast; about one-third of the increase comes from improved sentiment.
  - Potential output increases gradually to 2 percent above the current reference forecast by 2030; net effect on inflation reaches about 20 basis points by 2030.
  - China’s current account decreases considerably (lower surplus relative to the reference forecast).

### Tariff Measures and Model-Based Assessment
- Tariff announcements considered: measures implemented between February 1 and April 4, 2025, including unilateral US tariff increases (some country/region specific, some on specific goods like steel, aluminum, autos).
- Effective tariff rate increases:
  - The combined measures increase the effective overall tariff rate in the United States by about 25 percentage points.
  - Average increases by partner: about 15 percentage points for Canada, the euro area, and Mexico; 27 percentage points for an aggregate of Asian countries excluding China; more than 50 percentage points for China.
  - China increases tariffs on all US imports by 34 percentage points, in addition to earlier targeted measures.
  - Countermeasures amount to an effective tariff rate increase of about 5 percentage points on total US goods exports.
- Models used for assessment:
  - GIMF: global dynamic model with capital accumulation, rigidities, three sectors, and global value chains (version here has eight countries for some assessments).
  - CP: static model with 160 countries and 12 sectors (specification used here).
  - CFRT: static model with 60 countries and 17 sectors (specification used here); features heterogeneous firms with increasing returns to scale.
- Short-term (one to three years) GIMF analysis assumptions:
  - Endogenous monetary policy responses; fully floating exchange rates in Canada, the euro area, Mexico, the United States, and other regions.
  - Yuan-to-dollar exchange rate assumed managed through capital flow measures, allowing some adjustment but less than a fully floating regime.
  - Tariff revenues used to reduce debt over the first 30 years; rebated to households in the long term.
- Two GIMF specification variants considered:
  - US dollar invoicing of global trade: baseline where exporters charge in local currency vs. alternative where about half of global trade is denominated in dollars (the latter leads to inflationary pressures in other countries when the US dollar appreciates).
  - US inflation expectations regarding permanence of tariffs: initial assumption that tariffs are perceived as permanent (large dollar appreciation, US firms partly absorb import-cost increases via lower margins) vs. alternative where tariffs are expected to be removed after several years (limiting dollar appreciation).

### Key Quantitative Findings and Magnitudes
- Probabilities and rates:
  - Risk US headline inflation > 3.5 percent in 2025: > 30 percent (was 13 percent in October).
  - Probability average 2025 three-month Treasury bill rate > 4.5 percent for 2025: about 33 percent (up from 27 percent).
  - Probability global growth in 2025 < 2 percent: close to 30 percent (vs. 17 percent in October).
  - Probability global headline inflation > 5 percent: about 31 percent (vs. 34 percent in October).
- Fiscal and tariff magnitudes:
  - TCJA renewal: about 11 percent of GDP over 2025–34; deficits reach about 1.4 percent of GDP by 2027.
  - Additional 50 percentage point increase in tariffs on all China-US trade (scenario A component).
  - Net increase of about 18 percentage points in effective tariff rate on both US goods imports and US goods exports relative to reference forecast (scenario A trade-war construction).
  - Effective overall US tariff rate increase considered: about 25 percentage points.
  - Country/region-specific average tariff increases: Canada/euro area/Mexico about 15 percentage points; Asian aggregate excl China 27 percentage points; China more than 50 percentage points.
  - China’s tariff increase on all US imports: 34 percentage points.
  - Countermeasures raise effective tariff on total US goods exports by about 5 percentage points.
- Macroeconomic effects:
  - Asset price declines in 2025: US about 5 percent on average for the year; emerging markets about 3 percent.
  - Sovereign and corporate premiums: emerging markets excluding China +50 basis points; corporate premiums in advanced economies and China +25 basis points.
  - Combined Scenario A: global GDP −1.3 percent by 2025 and −1.9 percent by 2026 vs. reference.
  - Tariff-only effect: world GDP −0.6 percent by 2027 and −1 percent in the long term.
  - Trade-war-related global inflation: small increase about 10 basis points in 2025–26, but overall scenario A leads to global headline inflation and policy rates falling close to 40 basis points by 2027.
  - Combined Scenario B: global output +0.4 percent by 2026 and +0.8 percent in the long term.
  - US long-term public debt decline in Scenario B: 25 percentage points of GDP.
  - US GDP effect in Scenario B: +0.2 percent in 2025–26; long-run +0.4 percent relative to reference.
  - Global real interest rates in Scenario B: decrease by 10 basis points in the long run.
  - Euro area: public investment rise reaches 1 percent of GDP additional spending by 2026; euro area GDP +1.3 percent by 2026; policy rate +50 basis points; inflation +20 basis points over the WEO horizon.
  - China: GDP + about 1 percent by 2026 in Scenario B; potential output ~2 percent above reference by 2030; inflation + about 20 basis points by 2030.

*Source: IMF staff estimates (Box 1.1, Chapter 1, World Economic Outlook: April 2025).*

### Box 1.2. The Global Effects of Recent Trade Policy Actions: Insights from Multiple Models

### Box 1.2. The Global Effects of Recent Trade Policy Actions: Insights from Multiple Models

### Short-run effects (GIMF simulations)
- Simulation setup:
  - Three versions of GIMF: the standard specification; temporary tariffs with higher pass-through; and a version with about 50 percent of global trade invoiced in US dollars (dollar invoicing for GVCs).
  - Results shown as deviations from a no-tariff baseline for the world, the United States, China, Canada and Mexico combined (CMX), the euro area, and other Asian countries.

- Currencies:
  - Higher tariffs lead to a depreciation of currencies with respect to the dollar.
  - The euro area and Other Asia experience the largest depreciations.
  - The yuan (China) depreciates by less relative to others on account of the exchange rate management assumption.
  - Exchange rate movements are considerably smaller if tariff increases are perceived as temporary, about one-third the size relative to the version of the model in which tariffs are perceived as permanent.

- Inflation:
  - The impact on inflation is uncertain across model variants.
  - In the standard version, effects are limited except in China, which experiences a decrease of about 60 basis points in 2026 because of the managed exchange rate.
  - When tariffs are perceived to be temporary and import costs are fully passed on, US inflation increases by close to 50 basis points in 2025.
  - Inflationary effects in the United States are offset in some scenarios by the appreciation of the dollar and some decline in markups.
  - Outside the United States, inflationary impacts are larger if the dollar plays a central role in the pricing of global trade, as the appreciation of the dollar raises production costs globally.

- Real activity:
  - Tariffs have a large negative impact on global activity in the short run.
  - The effect is largest for Canada and Mexico, China, and the United States.
  - The negative impact on the United States is amplified in the version where tariffs are perceived as temporary and import costs are fully passed on, because the resulting increase in inflation leads to a tightening of monetary policy.
  - The euro area and Other Asia benefit slightly in the short run from trade diversion, but the effect depends on the currency used for invoicing global trade.
  - Under dollar invoicing, the appreciation of the dollar weighs on global external demand, and other regions experience large losses as well.
  - The world economy sees a negative hit to activity that ranges between 0.4 and 1 percent of world GDP by 2027.

### Medium- to long-term effects (10-year horizon; GIMF, CP, CFRT; tariffs assumed permanent)
- Modeling emphasis and channels:
  - CP (Caliendo and Parro): emphasizes resource misallocation across sectors from tariffs.
  - CFRT (Caliendo, Feenstra, Romalis, and Taylor): emphasizes larger losses because tariffs reduce access to foreign markets by the most productive firms and prompt entry of less productive firms domestically.
  - GIMF: emphasizes lower levels of capital accumulation from tariff-related distortions.
  - All models note potential favorable terms-of-trade effects when tariffs are imposed by large countries.
  - Results depend crucially on trade elasticities (substitution across exporters) and macro elasticities (substitution between foreign and domestic producers); elasticities are greater in the two trade models (CP, CFRT) than in GIMF.

- Trade (long-run, percent deviation from no-tariff baseline):
  - Real exports (percent deviation):
    - United States: GIMF –19.3; CP –21.8; CFRT –27.6
    - China: GIMF –5.4; CP –4.9; CFRT –6.7
    - Canada and Mexico: GIMF –5.7; CP –1.8; CFRT –6.0
    - Euro Area: GIMF –1.1; CP 0.0; CFRT –0.5
    - Other Asia: GIMF –1.6; CP –0.1; CFRT –0.3
    - World: GIMF –5.1; CP –3.1; CFRT –4.2
  - Despite China facing the largest tariff increase, its export decline is partially mitigated by export diversion to other markets.
  - Magnitudes are broadly similar across GIMF and the two trade models despite different mechanisms emphasized.

- Output (long-run, percent deviation):
  - Real GDP (percent deviation):
    - United States: GIMF –1.3; CP –0.3; CFRT –0.9
    - China: GIMF –1.1; CP –0.5; CFRT –0.7
    - Canada and Mexico: GIMF –1.9; CP –0.5; CFRT –0.7
    - Euro Area: GIMF –0.6; CP 0.0; CFRT –0.2
    - Other Asia: GIMF –1.0; CP 0.0; CFRT 0.3
    - World: GIMF –0.9; CP –0.2; CFRT –0.4
  - Tariffs generate global long-term output losses across all models.
  - Canada and Mexico, China, and the United States are the most affected.
  - Differences across models:
    - GIMF shows large negative effects for the euro area and Other Asia because it captures tariff-induced distortions along global supply chains and lower capital accumulation.
    - Trade models (CP, CFRT) show relatively smaller effects for some regions due to greater trade reallocation enabled by larger elasticities of substitution, allowing less-exposed countries to benefit from reconfiguration of global trade.
  - Mechanisms compounding losses: lower capital accumulation (GIMF), sectoral misallocation (trade models), and prolonged trade policy uncertainty (not included in the simulations) could together offset any positive reallocation effects.

*Italic: Source: IMF staff estimates; results reported from GIMF, CP (Caliendo and Parro 2015), and CFRT (Caliendo, Feenstra, Romalis, and Taylor 2023) as presented in Box 1.2.*

### 1. Share of AI-Related Value-Added Output in GDP

### 1. Share of AI-Related Value-Added Output in GDP

### Projected electricity demand and IT-sector TFP
- IMF-ENV model captures AI impact as an increase in information technology (IT) sectors’ TFP in China, the United States, and Europe to match expected increase in data center power demand between 2025 and 2030.
- Projected constant annual TFP growth rates: 22 percent (United States), 13 percent (Europe), and 10 percent (China).

### Scenarios and simulation setup
- Three scenarios simulated:
  - Baseline scenario: excludes AI-related TFP shock; reflects energy and emissions projections consistent with policies introduced through 2024.
  - AI scenario under current energy policies: includes AI-related TFP shock; electricity generation composition remains identical to baseline.
  - AI scenario under alternative energy policies: includes AI-related TFP shock; share of renewables in total electricity generation is aligned with regions’ long-term strategies using feed-in tariffs for renewables.
- Results for both AI scenarios are reported as deviations from the baseline scenario, unless stated otherwise.

### Electricity supply and generation mix (2030) — magnitudes and shifts
- Increase in total electricity supply in the AI scenario under current energy policies relative to baseline by 2030:
  - United States: 8 percent, equivalent to 525 TWh.
  - Europe: 3 percent, equivalent to 145 TWh.
  - China: 2 percent, equivalent to 237 TWh.
- Under alternative energy policies (same total increase but shifted composition), generation from solar and wind offsets other sources by:
  - China: about 166 TWh.
  - United States: about 58 TWh.
  - Europe: about 35 TWh.

### Electricity prices and supply rigidities
- Under current energy policies (moderate supply response), projected electricity price increases by 2030:
  - United States: 0.9 percent.
  - Europe: 0.45 percent.
  - China: 0.35 percent.
- If renewables scale-up slows and transmission and distribution investments are insufficient, price increases could escalate up to:
  - China: 5.3 percent.
  - United States: 8.6 percent.
  - Europe: 3.6 percent.
- Summary statement in conclusions: “In the United States, ... AI expansion alone could increase electricity prices by up to 9 percent.”

### Sectoral and GDP impacts
- Redirecting electricity without further transmission and distribution investment could reduce activity in electricity-intensive manufacturing sectors:
  - In the United States, annual growth in value added of these sectors would fall by an average of 0.3 percentage point compared with baseline, reducing annual GDP growth by 0.1 percentage point.
- AI shock raises average annual growth rate of global GDP by 0.5 percentage point between 2025 and 2030 (range consistent with previous IMF estimates of 0.1 percentage point to 0.8 percentage point).
- In the AI scenario under alternative energy policies, growth gains are slightly reduced by the fiscal cost of feed-in tariffs:
  - Fiscal costs of feed-in tariffs range from 0.3 percent to 0.6 percent of GDP across countries and are financed through increased lump-sum taxes, slightly reducing household consumption.
- Net effect: growth benefits from AI expansion far outweigh these fiscal costs, resulting in similar average annual GDP growth across both AI scenarios.

### Emissions, cumulative impacts, and social cost
- In the AI scenario under current energy policies, 2030 greenhouse gas (GHG) emissions increases relative to baseline:
  - United States: 5.5 percent.
  - Europe: 3.7 percent.
  - China: 1.2 percent.
  - Global average increase: 1.2 percent.
- Cumulative global GHG emissions increase between 2025 and 2030:
  - AI scenario under current energy policies: 1.7 gigatons (Gt).
  - AI scenario under alternative energy policies (modest decarbonization via renewables feed-in tariffs): 1.3 Gt, which is 24 percent less than the 1.7 Gt under current energy policies.
- Using a median social cost of carbon estimate of $39 per ton:
  - Additional social cost for 1.3 to 1.7 Gt of CO2-equivalent emissions is about $50.7 billion to $66.3 billion.
  - This social cost is about 1.3 percent to 1.7 percent of the AI-driven increase in real world GDP between 2025 and 2030.

### Key uncertainties and risks
- Breakthroughs in algorithmic efficiency could lower computational costs, but may be offset by greater compute use for higher-performing models and by reasoning models that require more compute in deployment.
- Lower costs and availability of open-source models could increase AI compute demand.
- Demand for computing and electricity from AI service producers is subject to wide uncertainty; delayed energy investments could cause underinvestment and higher prices.
- Additional price pressure could arise from concurrent electrification trends (buildings, transportation), battery and fuel cell manufacturing, AI, and cryptocurrency mining.

### Policy implications and recommendations
- Energy policy focus: AI expansion relies on electricity growth, so countries’ energy policies should focus on supply-side responses.
- Supply-side measures simulated as effective in limiting price and emissions impacts:
  - Scale-up of renewables through feed-in tariffs for solar PV and wind.
  - Investments in transmission and distribution capacity.
  - Public investments to upgrade transmission and distribution infrastructure (examples cited for the United States).
- Complementary flexibility and supply options noted:
  - Innovative solutions like power coupling and small modular nuclear reactors could offer flexibility, potentially making constraints less restrictive.
- Distributional and governance concerns:
  - Economic benefits from AI are likely to out-weigh costs of additional emissions, but gains may be unevenly distributed across countries and groups, potentially exacerbating inequalities.
- Policy coordination imperative:
  - Policymakers and businesses must work together to ensure AI achieves its full potential while minimizing societal costs, including managing electricity supply, infrastructure investments, renewables deployment, and addressing distributional impacts.

*International Monetary Fund, World Economic Outlook, April 2025 — Chapter 1.*

### Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and

### Annex Table 1.1.4. Middle East and Central Asia Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment

### Overview
- Table covers: Real GDP (annual percent change), Consumer Prices (annual averages), Current Account Balance (percent of GDP), Unemployment (percent, national definitions may differ).
- Projection years shown: 2024, 2025, 2026.

### Regional aggregates — key projections
- Middle East and Central Asia — Real GDP projections: 2024: 2.4 percent; 2025: 3.0 percent; 2026: 3.5 percent.
- Middle East and Central Asia — Consumer Prices projections: 2024: 14.4 percent; 2025: 11.1 percent; 2026: 9.9 percent.
- Middle East and Central Asia — Current Account Balance projections: 2024: 2.0 percent of GDP; 2025: –0.1 percent of GDP; 2026: –0.4 percent of GDP.

### Oil exporters — notable country-level projections
- Oil Exporters (aggregate) — Real GDP: 2024: 2.5 percent; 2025: 2.6 percent; 2026: 3.1 percent.
- Oil Exporters — Consumer Prices: 2024: 8.5 percent; 2025: 10.3 percent; 2026: 10.0 percent.
- Oil Exporters — Current Account Balance: 2024: 4.2 percent of GDP; 2025: 1.4 percent of GDP; 2026: 0.9 percent of GDP.

Selected countries:
- Saudi Arabia — Real GDP: 2024: 1.3 percent; 2025: 3.0 percent; 2026: 3.7 percent. Consumer Prices: 2024: 1.7 percent; 2025: 2.0 percent; 2026: 2.0 percent. Current Account Balance: 2024: –0.5 percent of GDP; 2025: –4.0 percent of GDP; 2026: –4.3 percent of GDP. Unemployment: 2024: 3.5 percent.
- Iran — Real GDP: 2024: 3.5 percent; 2025: 0.3 percent; 2026: 1.1 percent. Consumer Prices: 2024: 32.6 percent; 2025: 43.3 percent; 2026: 42.5 percent. Current Account Balance: 2024: 2.7 percent of GDP; 2025: 0.9 percent of GDP; 2026: 1.3 percent of GDP. Unemployment: 2024: 7.8 percent; 2025: 9.5 percent; 2026: 9.2 percent.
- United Arab Emirates — Real GDP: 2024: 3.8 percent; 2025: 4.0 percent; 2026: 5.0 percent. Consumer Prices: 2024: 1.7 percent; 2025: 2.1 percent; 2026: 2.0 percent. Current Account Balance: 2024: 9.1 percent of GDP; 2025: 6.6 percent of GDP; 2026: 6.4 percent of GDP.
- Kazakhstan — Real GDP: 2024: 4.8 percent; 2025: 4.9 percent; 2026: 4.3 percent. Consumer Prices: 2024: 8.7 percent; 2025: 9.9 percent; 2026: 9.4 percent. Current Account Balance: 2024: –1.3 percent of GDP; 2025: –3.6 percent of GDP; 2026: –3.7 percent of GDP. Unemployment: 2024: 4.7 percent; 2025: 4.6 percent; 2026: 4.6 percent.
- Qatar — Real GDP: 2024: 2.4 percent; 2025: 2.4 percent; 2026: 5.6 percent. Consumer Prices: 2024: 1.1 percent; 2025: 1.2 percent; 2026: 1.4 percent. Current Account Balance: 2024: 17.2 percent of GDP; 2025: 10.8 percent of GDP; 2026: 10.3 percent of GDP.
- Kuwait — Real GDP: 2024: –2.8 percent; 2025: 1.9 percent; 2026: 3.1 percent. Consumer Prices: 2024: 2.9 percent; 2025: 2.5 percent; 2026: 2.2 percent. Current Account Balance: 2024: 29.5 percent of GDP; 2025: 22.7 percent of GDP; 2026: 19.3 percent of GDP.

### Oil importers — notable country-level projections
- Oil Importers (aggregate) — Real GDP: 2024: 2.3 percent; 2025: 3.6 percent; 2026: 4.1 percent.
- Oil Importers — Consumer Prices: 2024: 4.1 percent; 2025: 12.4 percent; 2026: 12.4 percent.
- Oil Importers — Current Account Balance: 2024: –3.9 percent of GDP; 2025: –3.8 percent of GDP; 2026: –3.5 percent of GDP.

Selected countries:
- Egypt — Real GDP: 2024: 2.4 percent; 2025: 3.8 percent; 2026: 4.3 percent. Consumer Prices: 2024: 33.3 percent; 2025: 19.7 percent; 2026: 12.5 percent. Current Account Balance: 2024: –5.4 percent of GDP; 2025: –5.8 percent of GDP; 2026: –3.7 percent of GDP. Unemployment: 2024: 7.4 percent; 2025: 7.7 percent; 2026: 7.7 percent.
- Pakistan — Real GDP: 2024: 2.5 percent; 2025: 2.6 percent; 2026: 3.6 percent. Consumer Prices: 2024: 23.4 percent; 2025: 5.1 percent; 2026: 7.7 percent. Current Account Balance: 2024: –0.5 percent of GDP; 2025: –0.1 percent of GDP; 2026: –0.4 percent of GDP. Unemployment: 2024: 8.3 percent; 2025: 8.0 percent; 2026: 7.5 percent.
- Morocco — Real GDP: 2024: 3.2 percent; 2025: 3.9 percent; 2026: 3.7 percent. Consumer Prices: 2024: 0.9 percent; 2025: 2.2 percent; 2026: 2.3 percent. Current Account Balance: 2024: –1.4 percent of GDP; 2025: –2.0 percent of GDP; 2026: –2.2 percent of GDP. Unemployment: 2024: 13.3 percent; 2025: 13.2 percent; 2026: 12.9 percent.
- Uzbekistan — Real GDP: 2024: 6.5 percent; 2025: 5.9 percent; 2026: 5.8 percent. Consumer Prices: 2024: 9.6 percent; 2025: 8.8 percent; 2026: 7.2 percent. Current Account Balance: 2024: –5.0 percent of GDP; 2025: –5.0 percent of GDP; 2026: –4.8 percent of GDP. Unemployment: 2024: 5.5 percent; 2025: 5.0 percent; 2026: 4.5 percent.
- Sudan — Real GDP: 2024: –23.4 percent; 2025: –0.4 percent; 2026: 8.8 percent. Consumer Prices: 2024: 176.8 percent; 2025: 100.0 percent; 2026: 63.2 percent. Current Account Balance: 2024: –3.5 percent of GDP; 2025: –3.6 percent of GDP; 2026: –8.6 percent of GDP. Unemployment: 2024: 60.8 percent; 2025: 62.0 percent; 2026: 59.7 percent.
- West Bank and Gaza — Consumer Prices: 2025: 52.9 percent (other series not available in table).

### Memoranda and cross-region notes
- Caucasus and Central Asia — Real GDP: 2024: 5.4 percent; 2025: 4.9 percent; 2026: 4.3 percent. Consumer Prices: 2024: 6.7 percent; 2025: 8.1 percent; 2026: 7.4 percent. Current Account Balance: 2024: –1.3 percent of GDP; 2025: –2.0 percent of GDP; 2026: –2.6 percent of GDP.
- Middle East, North Africa, Afghanistan, and Pakistan — Real GDP: 2024: 1.9 percent; 2025: 2.6 percent; 2026: 3.4 percent. Consumer Prices: 2024: 15.7 percent; 2025: 11.7 percent; 2026: 10.3 percent. Current Account Balance: 2024: 2.5 percent of GDP; 2025: 0.2 percent of GDP; 2026: 0.0 percent of GDP.
- Middle East and North Africa — Real GDP: 2024: 1.8 percent; 2025: 2.6 percent; 2026: 3.4 percent. Consumer Prices: 2024: 14.6 percent; 2025: 12.7 percent; 2026: 10.7 percent. Current Account Balance: 2024: 2.8 percent of GDP; 2025: 0.3 percent of GDP; 2026: 0.1 percent of GDP.
- Israel (shown for geography; not included in regional aggregates) — Real GDP: 2024: 0.9 percent; 2025: 3.2 percent; 2026: 3.6 percent. Consumer Prices: 2024: 3.1 percent; 2025: 2.7 percent; 2026: 2.0 percent. Current Account Balance: 2024: 3.1 percent of GDP; 2025: 2.8 percent of GDP; 2026: 2.9 percent of GDP. Unemployment: 2024: 3.0 percent; 2025: 2.9 percent; 2026: 3.2 percent.

*Source: IMF staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/weo/2025/april/english/ch1.pdf_