Growth prospects ‘dim’ amid tariff onslaught, says IMF

The IMF has warned against premature optimism about trade war impacts, forecasting Australia’s growth will reach just 1.8 per cent this year amid ongoing global tensions.

Australia has not yet escaped the impacts of the Trump administration's aggressive pursuit of tariffs, with the International Monetary Fund cautioning that the full shock of disrupted global trade remains unclear.

Australia has not yet escaped the fallout wrought by Donald Trump’s aggressive pursuit of tariffs, with the International Monetary Fund cautioning that the prospects for global growth remain “persistently dim” as trade tensions threaten to further weigh on economic output.

Releasing its latest World Economic Outlook on Tuesday, the Washington-based fund warned against reaching the false conclusion that the global economy had emerged unscathed from the recent tariff surge.

“That would be both premature and incorrect,” the IMF’s chief economist, Pierre-Olivier Gourinchas, said.

While the tariffs’ immediate impact has been milder than the IMF had initially feared – partly because many targeted countries had chosen not to retaliate – it warned that past experience suggested it could take years for the full effects to become apparent.

And even as loose financial conditions and booming artificial intelligence investment helped prop-up economic activity, those forces were still being offset by continued tariff shocks, “further dimming already lacklustre growth prospects”.

“Overall, despite a steady first half, the outlook remains fragile, and risks remain tilted to the downside,” Professor Gourinchas said, adding that any renewed flare-up in trade tensions or supply chain disruptions would act as a further drag on global growth.

Fresh forecasts in the IMF’s latest outlook projected global economic growth would ease to 3.2 per cent by year’s end, down from 3.3 per cent in 2024, before sliding to 3.1 per cent in 2026 – a slight ­downgrade on its previous Oct­ober estimates.

Global inflation, meanwhile, was expected to be “persistently higher” than the IMF’s previous October forecasts.

For Australia, the fund expects a more subdued rebound, forecasting GDP growth of 1.8 per cent this year – up from 1 per cent in 2024 – before edging higher to 2.1 per cent in 2026.

It predicted domestic inflation would remain within the Reserve Bank’s 2 to 3 per cent target band over the IMF’s two-year forecast period.

The latest outlook from the IMF, now in its 80th year of promoting financial stability, coincides with Jim Chalmers visit to Washington DC from Wednesday, where he will attend the fund’s annual meeting, alongside separate gatherings of G20 fin­ance ministers and the World Bank.

In a statement ahead of the visit, the Treasurer said his meetings with his international counterparts and institutional investors would highlight Australia’s resilience and attractiveness as a destination for capital.

“Whether it’s our resources or renewable energy, our skills or stability, Australia has exactly what the world needs, when the world needs it,” Dr Chalmers said.

Anthony Albanese will follow Dr Chalmers to Washington next week for his first formal meeting with Mr Trump, with the 10 per cent duties levied against Australia goods destined for the US expected to feature heavily during their discussions.

The meeting comes amid renewed global trade ructions after Beijing imposed strict export controls on rare earths last week, prompting Washington to threaten 100 per cent tariffs on Chinese imports from November. The tit-for-tat escalation sparked a sharp market sell-off after Mr Trump suggested he might not meet Chinese President Xi Jinping at a scheduled summit later this month – a critical opportunity to quell tensions.

The continued uncertainty in international trade policy has also spilt into consumer confidence, with sentiment tumbling to its lowest level in 12 months in October according to a new ANZ-Roy Morgan survey released on ­Tuesday.

More startling, Australians’ view of the economy over the next five years continued to erode, with the survey showing households’ economic expectations over the medium term registering their lowest reading in 16 years.

“Globally, the US federal government shutdown, ongoing trade policy uncertainty and political uncertainty in Japan and France may have been behind this,” ANZ economist Sophia Angala wrote in a note to clients.

Reacting to the consumer survey, opposition Treasury spokesman Ted O’Brien pinned blame for the result on the government’s handling of the economy. “Labor’s economic mismanagement is crushing the hopes of Australian families,” he said.