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World Economic Outlook Update, July 2025: Opening Remarks by Pierre-Olivier Gourinchas
July 29, 2025
World Economic Outlook Update, July 2025: Global Economy: Tenuous Resilience amid Persistent Uncertainty
July 29, 2025
Global trade developments continue to shape the outlook.
Following an unprecedented escalation in tariffs imposed on the rest of the world in April, the United States partly reversed course, pausing the higher tariffs for most of its trading partners. This, and a de-escalation of trade tensions with China in May, modestly reduced the US effective tariff rate from 24% to about 17%.
Despite these welcome developments, tariffs remain historically high, and global policy remains highly uncertain, with only a few countries having reached fully-fleshed out trade agreements.
This modest decline in trade tensions, however fragile, has contributed to the resilience of the global economy so far.
A few other developments have also helped:
Accordingly, we have revised our growth projections upwards from the April 2025 reference forecast, from 2.8 percent to 3.0 percent this year, and from 3.0 percent to 3.1 percent next year.
Most regions are experiencing modest growth upgrades this year and next.
This resilience is welcome, but it is also tenuous. While the trade shock could turn out to be less severe than initially feared, it is still sizeable, and evidence is mounting that it is hurting the global economy. For instance, compared to our pre-April 2 forecast, global growth is revised downwards by 0.2 percentage points this year. At around 3 percent, global growth remains disappointingly below the pre-COVID average.
And we continue to project a persistent decline in global trade as a share of output despite the recent front-loading, from 57% in 2024 to 53% in 2030.
Risks to the global economy remain firmly to the downside.
The current trade environment remains precarious. Tariffs could well reset at much higher levels once the ‘pause’ expires on August 1 or if existing deals unravel. If this were the case, model-based simulations suggest global output would be 0.3 percent lower in 2026.
Without comprehensive agreements, the ongoing trade uncertainty could increasingly weigh on investment and activity.
Further, while exports front-loading has supported global activity so far, firms could become vulnerable if the demand for stockpiled goods does not materialize.
The geopolitical environment also remains fragile, with a potential for more negative supply disruptions.
While global inflation continues to decline, the latest price data suggests that inflation pressures are building gradually in the US. Overall, US import prices in dollars have remained largely unchanged or even increased this year, suggesting that the cost of tariffs will be borne by US retailers, and eventually customers as firms start to pass through higher costs into their prices.
In too many countries, the combination of high public debt and still elevated public deficits continues to be a cause for concern. The lack of fiscal space makes these countries especially vulnerable to a sudden tightening in financial conditions that increase term premia.
Such tightening becomes even more likely if central bank independence — a cornerstone of macroeconomic, monetary and financial stability — is undermined.
Turning to policies, our recommendations continue to call for prudence and the need for improved collaboration.
Let me outline some key priorities:
Thank you.
