The International Monetary Fund (IMF) has slightly raised its global growth outlook for 2025, citing less severe trade disruptions and more favorable financial conditions than expected, but cautioned that a renewed trade war between the United States and China could significantly weaken global output.

In its World Economic Outlook released on Tuesday, the IMF projected global real GDP growth at 3.2 percent for 2025, up from 3.0 percent in July and 2.8 percent in April.

The improvement reflects reduced tariff impacts following recent trade deals between the US and major economies, which helped avoid the worst effects of earlier protectionist measures. The Fund maintained its 2026 growth forecast at 3.1 percent.

IMF chief economist Pierre-Olivier Gourinchas said the recovery was supported by an adaptable private sector that adjusted to trade disruptions through early import purchases and diversified supply chains, along with fiscal support in Europe and China, a weaker US dollar, and strong investment in artificial intelligence.

“Not as bad as we feared, but worse than we need,” he remarked ahead of the IMF and World Bank annual meetings.

However, the outlook remains fragile. Former US President Donald Trump reignited tensions last week by threatening 100 percent tariffs on Chinese imports, following Beijing’s expanded export restrictions on rare earth materials. The IMF warned that an escalation could derail the fragile recovery.

According to a downside scenario in the report, if tariffs rise by 30 percentage points on Chinese goods and by 10 points on imports from Japan, the euro area, and emerging Asian economies, global growth could decline by 0.3 percentage points in 2026 and more than 0.6 points by 2028. Factoring in broader spillovers, including higher inflation and weaker demand for US assets, global GDP could fall by 1.2 percentage points in 2026 and 1.8 points by 2027.

Despite the risks, the IMF sees the US economy as resilient, forecasting 2.0 percent growth in 2025 and 2.1 percent in 2026, both modest upgrades from July, driven by Republican tax measures, easier financial conditions, and AI-led investment.

The eurozone is expected to grow 1.2 percent in 2025, up from 1.0 percent, supported by fiscal expansion in Germany and strong performance in Spain. Japan’s growth outlook improved to 1.1 percent for 2025 from 0.7 percent, reflecting stronger domestic demand and wage growth, though it is expected to ease to 0.6 percent in 2026.

The IMF said the world economy remains “steady but vulnerable,” with geopolitical tensions and trade fragmentation posing the greatest threats to sustained recovery.