The IMF has warned of the risk of trade tensions on global growth

Trade tensions and the changing artificial intelligence (AI) boom are among the main risks to global economic growth, the International Monetary Fund (IMF) has warned.

Its comments came on the heels of its latest world economic outlook, in which it described the global economy as “steady”, with growth expected to remain “modifiable” this year.

The IMF forecast was made ahead of Donald Trump’s threat over the weekend to impose tariffs on eight European countries that oppose his proposed takeover of Greenland.

The fund also said the independence of central banks is “paramount” for the stability and growth of the global economy.

The economic watchdog said global growth is expected to reach 3.3% this year – an increase from the previous forecast of 3.1% – before slowing slightly to 3.2% in 2027.

Speaking to the BBC, the IMF’s chief economist Pierre Olivier Gourinchas said: “We have a picture of a global economy that is improving – it’s not very high growth rates but it’s quite stable, quite stable.

“In a sense the world economy is reeling from trade disruptions in 2025, and this is ahead of what we expect.”

He said that while the effects of Trumps tariffs “definitely slowed down global activity”, he added that there were “other things that are more than counterbalancing”.

The IMF report said the global economy was helped by “tailwinds from a surge in investment related to technology, including artificial intelligence (AI)”.

However, it said that risks in the global outlook “remain tilted to the downside”, warning that if expectations about the development of AI become too optimistic a sudden market correction could be triggered.

Even a relatively mild market correction could have an impact, Gourinchas said, given how much share price gains have contributed to wealth gains in recent years. Other risks are emerging as companies increasingly borrow to make AI investments.

“It doesn’t take a reaction in the market to have an impact on people’s wealth in relation to their income so that they start cutting consumption, (businesses start) changing their investment plans and so on, for there to be some weakness there,” he said.

As well as the end of the AI ​​boom, another possible risk highlighted by the IMF is that “trade tensions could flare up, prolonging uncertainty and further weighing on activity”.

“National political tensions or geopolitical tensions could explode, introducing new layers of uncertainty and disrupting the global economy through its impact on financial markets, supply chains, and commodity prices.”

The IMF estimates that the UK will grow by 1.4% in 2025, a slight increase on the previous projection of 1.3%. Its forecast for this year remains unchanged at 1.3%, making it the third fastest growing economy in the G7 behind the US and Canada. It predicts 1.5% growth in 2027.

Chancellor Rachel Reeves said the IMF had upgraded UK growth for the third time since April 2025, and the country was “on course to be the fastest growing economy in the European G7 this year and next”.

But shadow chancellor Sir Mel Stride said: “A 0.1% rise is not a victory and the fact that Rachel Reeves is celebrating it shows how desperate she is.”

The IMF expects global inflation to decrease from an estimated 4.1% in 2025 to 3.8% in 2026 and further to 3.4% the following year.

In the UK, Gourinchas said price changes in regulated industries, such as transport and energy, continued to push up inflation last year but “that will go away”.

The IMF expects UK inflation to return to the 2% target by the end of the year, as a weakening labor market continues to hold down wage growth.

The IMF warned that central bank independence is “paramount for macroeconomic stability and economic growth”.

“Preserving the independence of central banks, legal and operational, remains critical for avoiding the risk of fiscal dominance, anchoring inflation expectations, and enabling them to achieve their mandates,” it said.

It came a week after US Federal Reserve chairman Jerome Powell said he was the subject of an “unprecedented” criminal investigation by the US justice department into his testimony about the renovation of the bank building.

He said he believed it was because of Donald Trump’s anger at the Fed not cutting interest rates, but Trump said he did not know about the investigation.

Powell’s comments prompted central bank chiefs around the world to express “full solidarity” with the US Fed chief, while three former bank chiefs strongly criticized the investigation.

Gourinchas said that preserving the independence of the central bank will be key to the success of the economy in the coming years.

Without it, he warned, “the economic environment is rapidly deteriorating”.

Gourinchas said challenges to central bank independence are emerging elsewhere, particularly in countries with large borrowing needs, as leaders are drawn to the idea that lower interest rates will make it less expensive to finance government spending.

But he warned that the dynamics are likely to lead to inflation and higher borrowing costs over time.

“The evidence is very clear. It’s self-defeating,” he said.