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Recent revisions by the International Monetary Fund (IMF) have prompted analysts to adopt a more cautious outlook. With the IMF raising its growth and inflation forecasts, experts are carefully reassessing the potential economic implications, balancing optimism about expansion with concerns over rising price pressures.
A Review
The IMF struck a cautiously optimistic note in its latest World Economic Outlook (WEO) Update for July 2025, titled “Tenuous Resilience amid Persistent Uncertainty.” This is as the multilateral lender revised its global growth and inflation forecasts upward compared to its April 2025 projections. Global economic growth is now projected to reach 3.0 per cent in 2025 and 3.1 per cent in 2026. These figures represent upgrades of 20 basis points (bps) and 10bps, respectively, from the April forecasts.
The IMF attributes these upward adjustments to a stronger-than-expected front-loading of trade activity, as businesses sought to move goods ahead of anticipated tariff hikes. Additionally, a lower effective global tariff rate than initially assumed, coupled with fiscal support in key economies and a weaker US dollar that has broadly eased global financial conditions, contributed to the improved outlook.
Despite these positive revisions, the IMF underscored that the 2025–2026 projections remain below the 2024 global growth outturn of 3.3 per cent and significantly shy of the pre-pandemic average of 3.7 per cent.
On the inflation front, the IMF forecasts a moderation in global headline inflation to 4.2 per cent in 2025, a 10bps reduction from earlier projections, before settling at 3.6 per cent in 2026 (unchanged). The Fund, however, flagged inflation differentials across economies. In the United States, for instance, inflation is expected to remain stubbornly above the Federal Reserve’s 2.0 per cent target. In contrast, other major economies, particularly those in Europe and parts of Asia, are anticipated to experience more contained price pressures, reflecting diverse domestic conditions and policy responses.
Advanced economies are collectively expected to grow by 1.5 per cent in 2025 and 1.6 per cent in 2026, marking slight increases from their previous forecasts of 1.4 per cent and 1.5 per cent respectively. The US economy, in particular, is seen expanding by 1.9 per cent in 2025 and 2.0 per cent in 2026, with notable upward revisions of 10bps and 30bps. These improvements in the US outlook are attributed to a combination of softer-than-expected tariffs, strong domestic demand, and supportive financial conditions. Meanwhile, the Euro Area’s 2025 growth forecast was raised by 20bps to 1.0 per cent, primarily driven by strong pharmaceutical exports from Ireland, with its 2026 forecast holding steady at 1.2 per cent.
Perhaps the most significant revisions were seen in emerging markets and developing economies (EMDEs), where growth was upgraded to 4.1 per cent in 2025, an 80bps increase from April’s projections, and is projected to hold at 4.0 per cent in 2026. This reflects a stronger-than-expected first-half performance, notably in China, and an easing of trade tensions with the United States that spurred front-loaded activity. China’s growth is now forecast at 4.8 per cent in 2025 and 4.2 per cent in 2026, reflecting upward revisions of 80bps and 20bps, respectively. India’s growth also saw an upward revision to 6.4 per cent in both years, with gains of 20bps and 10bps, underpinned by resilient domestic demand and policy continuity.
Within sub-Saharan Africa, Nigeria’s economic outlook has improved moderately. The IMF now expects GDP growth of 3.4 per cent in 2025 and 3.2 per cent in 2026, upgrades of 40bps and 50bps, respectively. These revisions, according to the Fund, likely reflect the easing of inflationary pressures within Nigeria, a more stable foreign exchange market, and early signs of productivity gains in the non-oil sector, particularly agriculture and services.
On global financial markets, the IMF highlighted the recent equity rallies in the United States and broad-based gains across global bourses. These movements have been driven by resilient economic data and positive trade headlines, which have lifted investor sentiment and pushed risk asset valuations higher. Importantly, the weakening of the US dollar has also played a crucial role, easing financial conditions in many emerging and developing markets and alleviating some pressure on dollar-denominated debt servicing and external trade exposures.
Despite the more upbeat headline figures, the Fund issued a warning regarding persistent downside risks. Rising protectionism, evidenced by the recently enforced US import tariffs, unresolved trade agreements, and escalating geopolitical tensions, especially in Eastern Europe, the Middle East, and the South China Sea, could derail the fragile momentum in global output. The IMF stressed that disruptions in global supply chains and commodity markets could reintroduce price volatility, amplify uncertainty, and severely test central banks’ credibility in managing inflation expectations.
Financial market analysts and economists largely concur with the IMF’s assessment, underscoring the precarious balance between improved forecasts and persistent risks.
Analysts’ Comments
Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria and a leading economic commentator, welcomed the upward revisions but urged caution. “The IMF’s latest WEO update offers a glimmer of hope, particularly for emerging markets like Nigeria. The revisions for global growth and, critically, for Nigeria, suggest that some of the headwinds we faced earlier in the year are moderating. For Nigeria, the easing of inflationary pressures and greater stability in our foreign exchange market are vital indicators of a positive trajectory. However, the caveat about ‘tenuous resilience’ is crucial. We are still navigating a highly uncertain global environment,” he stated.
“The recent US tariffs are a stark reminder of the protectionist impulse that the IMF highlights as a key risk. While the weaker US dollar offers some relief for dollar-denominated debt, these tariffs could counteract the benefits of improved global financial conditions for economies heavily reliant on exports to the US. This underscores the need for proactive diversification of export markets and continued structural reforms,” he added.
Eva Lim, a senior economist at a London-based emerging markets investment bank, commented on the broader implications for capital flows. “The combination of softer global inflation, a weaker dollar, and modest global growth momentum, as projected by the IMF, could indeed provide a critical window of opportunity for EMDEs to stabilise macroeconomic conditions and attract foreign capital flows. For investors, this creates a more appealing risk-reward profile, particularly in economies demonstrating consistent reform momentum,” she said.
“However,” Lim added, “Investors remain highly sensitive to geopolitical flashpoints and trade policy uncertainty. Any significant escalation in Eastern Europe, the Middle East, or the South China Sea, or further punitive tariff measures, could swiftly reverse this nascent positive sentiment. The emphasis on sustained domestic reform momentum from the IMF is not just academic; it’s a direct signal to international capital that policies need to be credible and consistent to leverage this window of opportunity.”
David O’Connor, an analyst specialising in global trade at a New York-based think tank, pointed to the front-loading of trade activity as a distorted form of resilience. “The IMF’s acknowledgment that some of the improved trade activity was driven by anticipation of tariffs, rather than organic demand, is telling. It suggests a pull-forward of demand that might create a void later in the year. While a lower effective global tariff rate is positive, the unilateral actions by the US, as we’ve seen with the recent sweeping tariffs, can quickly change that landscape, leading to new uncertainties and potential disruptions,” he said.
“Central banks’ cautious stance on monetary policy, as noted by the IMF, suggests that we shouldn’t expect significant rate cuts to spur global growth. This places a greater burden on fiscal policies and structural reforms to drive economic activity,” O’Connor concluded. “For developing economies, this means prudent fiscal management and reforms that enhance productivity and attract investment become even more critical in an environment where global tailwinds might be limited.”
Overall, while the IMF’s July WEO Update offers a marginally more upbeat global picture, the consensus among analysts is that this resilience is indeed tenuous. The global economy remains highly dependent on the evolution of global trade dynamics, the calibrated actions of central banks, and the delicate resolution of key geopolitical flashpoints. For Nigeria and other EMDEs, while the slightly improved external environment provides some breathing room, sustained domestic reform momentum is deemed paramount to fully capitalise on this window of opportunity and build genuine, lasting resilience.
