The U.S. economy will continue to be the developed world’s best performer in 2025, easily topping Europe and Japan and giving President-elect Donald Trump a running start on his plan to spur faster growth, the International Monetary Fund said on Friday.
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But without criticizing Trump by name, the fund warned that excessive deregulation and tax cuts could create a “boom-bust” dynamic for the U.S. and global economies, with a short-term growth spurt followed by an abrupt slump. And it warned that new U.S. import tariffs and potential retaliation by other countries could reignite inflation.
During the presidential campaign, Trump promised “large tax cuts,” an end to “costly and burdensome regulations” and the most comprehensive taxes on imports in nearly a century.
The United States is expected to grow this year at an annual rate of 2.7 percent, half a percentage point faster than the fund projected in October. The Euro area and Japan both appear likely to grow at a rate of around 1 percent, the fund said in its latest global economic forecast.
The global economy will post steady but “lackluster” growth through the end of 2026, as major economies outside the United States struggle with their own domestic challenges.
“The big story is the divergence between the U.S. and the rest of the world,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.
American voters last year showed themselves unimpressed by Biden administration claims of a strong economy, rejecting Vice President Kamala Harris’s presidential bid over inflation concerns.
But since the depths of the pandemic recession, the United States has grown significantly faster than all of its advanced-economy rivals. Increasingly productive workers, a more welcoming business environment and the world’s largest capital market explain the growing U.S. edge, the fund said.
Economic problems in the Euro area and China could allow the United States to pull further ahead, Gourinchas said. The Chinese economy is at risk of tumbling into “a debt-deflation” trap, where weak demand causes prices to fall, making it harder for businesses and individuals to earn enough to repay their borrowing.
The IMF analysis offered no conclusions about specific Trump administration policies and said it is more likely that the United States grows faster than expected in 2025, rather than slower.
On Thursday, hedge fund manager Scott Bessent, Trump’s nominee to become treasury secretary, told his confirmation hearing, that the incoming president would “unleash the American economy” through deregulation, lower taxes and higher energy production.
“President Trump has a generational opportunity to unleash a new economic golden age that will create more jobs, wealth and prosperity for all Americans,” Bessent testified before the Senate Finance Committee.
But the IMF forecast carried some veiled warnings for U.S. policymakers, including on resurgent inflation and long-term government budget deficits.
Gourinchas said some Trump policies could halt progress in the fight against inflation, causing prices to rise at a faster clip.
“While many of the policy shifts under the incoming U.S. administration are hard to quantify precisely, they are likely to push inflation higher in the near term,” he wrote in a blog post on the IMF website.
Tax cuts and deregulation are likely to cause demand for goods and services to increase. At the same time, tariffs on imported goods and immigration restrictions will make it harder to satisfy that higher demand, meaning prices would be likely to increase, Gourinchas wrote.
Tax cuts would help the economy grow faster in the short term but require larger deficit reduction in the long term, which “could become disruptive to markets and the economy,” according to the IMF.
The fund raised particular concerns over the uncertainty surrounding trade policy, as Trump has already threatened to impose tariffs on the top three U.S. trade partners: Mexico, Canada and China. And those countries have vowed to retaliate with their own trade restrictions if he does.
New tariffs, or import taxes, could have a larger inflationary effect than those Trump imposed in his first term, the fund said. Consumers and businesses that were rattled by the highest inflation in 40 years under Biden might react quickly to new price increases, setting in motion a vicious cycle of rising prices and wages.
“Upside risks to inflation could be higher this time,” the fund concluded.
Get a curated selection of 10 of our best stories in your inbox every weekend.
But without criticizing Trump by name, the fund warned that excessive deregulation and tax cuts could create a “boom-bust” dynamic for the U.S. and global economies, with a short-term growth spurt followed by an abrupt slump. And it warned that new U.S. import tariffs and potential retaliation by other countries could reignite inflation.
During the presidential campaign, Trump promised “large tax cuts,” an end to “costly and burdensome regulations” and the most comprehensive taxes on imports in nearly a century.
The United States is expected to grow this year at an annual rate of 2.7 percent, half a percentage point faster than the fund projected in October. The Euro area and Japan both appear likely to grow at a rate of around 1 percent, the fund said in its latest global economic forecast.
The global economy will post steady but “lackluster” growth through the end of 2026, as major economies outside the United States struggle with their own domestic challenges.
“The big story is the divergence between the U.S. and the rest of the world,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.
American voters last year showed themselves unimpressed by Biden administration claims of a strong economy, rejecting Vice President Kamala Harris’s presidential bid over inflation concerns.
But since the depths of the pandemic recession, the United States has grown significantly faster than all of its advanced-economy rivals. Increasingly productive workers, a more welcoming business environment and the world’s largest capital market explain the growing U.S. edge, the fund said.
Economic problems in the Euro area and China could allow the United States to pull further ahead, Gourinchas said. The Chinese economy is at risk of tumbling into “a debt-deflation” trap, where weak demand causes prices to fall, making it harder for businesses and individuals to earn enough to repay their borrowing.
The IMF analysis offered no conclusions about specific Trump administration policies and said it is more likely that the United States grows faster than expected in 2025, rather than slower.
On Thursday, hedge fund manager Scott Bessent, Trump’s nominee to become treasury secretary, told his confirmation hearing, that the incoming president would “unleash the American economy” through deregulation, lower taxes and higher energy production.
“President Trump has a generational opportunity to unleash a new economic golden age that will create more jobs, wealth and prosperity for all Americans,” Bessent testified before the Senate Finance Committee.
But the IMF forecast carried some veiled warnings for U.S. policymakers, including on resurgent inflation and long-term government budget deficits.
Gourinchas said some Trump policies could halt progress in the fight against inflation, causing prices to rise at a faster clip.
“While many of the policy shifts under the incoming U.S. administration are hard to quantify precisely, they are likely to push inflation higher in the near term,” he wrote in a blog post on the IMF website.
Tax cuts and deregulation are likely to cause demand for goods and services to increase. At the same time, tariffs on imported goods and immigration restrictions will make it harder to satisfy that higher demand, meaning prices would be likely to increase, Gourinchas wrote.
Tax cuts would help the economy grow faster in the short term but require larger deficit reduction in the long term, which “could become disruptive to markets and the economy,” according to the IMF.
The fund raised particular concerns over the uncertainty surrounding trade policy, as Trump has already threatened to impose tariffs on the top three U.S. trade partners: Mexico, Canada and China. And those countries have vowed to retaliate with their own trade restrictions if he does.
New tariffs, or import taxes, could have a larger inflationary effect than those Trump imposed in his first term, the fund said. Consumers and businesses that were rattled by the highest inflation in 40 years under Biden might react quickly to new price increases, setting in motion a vicious cycle of rising prices and wages.
“Upside risks to inflation could be higher this time,” the fund concluded.
