The International Monetary Fund (IMF) has raised its global growth forecast. For 2025, the outlook is now 3.0%, up from 2.8%. The 2026 forecast has also increased to 3.1% from 3.0%. This growth is largely due to changes in tariffs rather than real economic strength. Global inflation is expected to decrease to 4.2% in 2025 and further to 3.6% in 2026. However, there are still risks such as higher tariffs, geopolitical issues, and budget deficits.

Economic Changes in Different Regions

The effective tariff rate for the United States is now predicted to be 17.3%, down from 24.4%. These tariffs are likely to influence U.S. inflation in the second half of 2025. New tax cuts and spending laws may increase the fiscal deficit by 1.5 percentage points, but tariff revenues are expected to cover about half of this increase. Economic predictions have been adjusted: the U.S. is expected to grow by 1.9% in 2025 and 2.0% in 2026. China’s growth forecast is now 4.8% for 2025 and 4.2% for 2026. The Euro area is expected to grow by 1.0% in 2025, while emerging market economies are projected to see a 4.1% growth in the same year. Global trade growth is anticipated to rise to 2.6% in 2025 but may slow to 1.9% in 2026. The IMF emphasizes the need for clear communication from central banks. They warn that actions that could weaken their credibility might lead to inflation fears and financial instability.

Market Outlook and Investment Opportunities

With the updated forecasts, the market faces a complex future. While the growth prediction is optimistic, we approach it with caution because it seems driven by tariff changes rather than real economic strength. This indicates that although riskier assets might see a temporary boost, their underlying stability is questionable. We are particularly concerned about the risk of rising U.S. inflation flagged for late 2025. As of July 29, we are entering that timeframe. Recent data shows some price pressures, with the latest core Personal Consumption Expenditures (PCE) Price Index at 2.8%. We expect that derivatives pricing might reflect higher near-term inflation and volatility, making options on the VIX index appealing. The notable increase in China’s growth projection to 4.8% makes us optimistic about related investments. We are considering long positions in industrial commodities like copper, which is currently trading around $4.50 per pound, as well as equities driven by Chinese demand. This positivity is supported by China’s official manufacturing PMI, which indicates expansion by remaining above the 50-point mark. In currency markets, we predict the U.S. dollar will strengthen against the euro. The U.S. faces rising inflation and a larger fiscal deficit, likely keeping the Federal Reserve vigilant. In contrast, the Euro area’s weaker 1.0% growth forecast suggests a more cautious European Central Bank. This difference supports a strategy of favoring the dollar against the euro. The expectation for world trade growth to rise to 2.6% this year before a sharp decline in 2026 presents a timely opportunity. We are considering investments in global logistics and shipping companies that may benefit from this short-term increase in activity. However, we plan to exit these positions later in the year as the expected slowdown for 2026 approaches. Create your live VT Markets account and start trading now.

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