Stock market today: S&P 500 falls as government shutdown, trade jitters persist
Investing.com -- The International Monetary Fund (IMF) has raised its global growth forecast for 2025 to 3.2%, up from its July prediction of 3.0%, while maintaining its 2026 outlook at 3.1%.
The upward revision, announced Tuesday in the IMF’s World Economic Outlook, comes as tariff impacts and financial conditions have proven less severe than initially feared. However, the organization warned that a potential escalation in the U.S.-China trade war threatened by President Donald Trump poses a "significant risk" to global economic growth.
IMF Chief Economist Pierre-Olivier Gourinchas noted that recent trade agreements between the U.S. and major economies have avoided the worst of Trump’s threatened tariffs with minimal retaliation. This marks the IMF’s second growth upgrade since April, when it had projected a more pessimistic 2.8% growth rate following Trump’s implementation of broad "reciprocal" tariffs.
However, tensions escalated Friday when Trump threatened 100% duties on Chinese goods, on top of existing tariffs averaging 55%, in response to Beijing’s expanded export controls on rare earths. Treasury Secretary Scott Bessent indicated Monday that negotiations were underway to prevent a major trade war escalation.
The IMF’s downside risk scenario shows that if tariffs increase by 30 percentage points on Chinese goods and 10 percentage points on goods from Japan, the euro area, and Asian emerging markets, global growth could be reduced by 0.3 percentage points in 2026, with negative impacts increasing to more than 0.6 percentage points through 2028.
U.S. growth remains resilient in the IMF’s baseline forecast, with a slight upgrade to 2.0% for 2025 from the previous 1.9%, and 2.1% for 2026. These figures remain below the 2024 growth rate of 2.8%.
The euro zone growth forecast improved to 1.2% from 1.0%, driven by fiscal expansion in Germany and strong momentum in Spain. Japan saw a significant increase to 1.1% from 0.7%, benefiting from front-loaded trade and stronger wage growth.
The IMF maintained its China growth forecasts at 4.8% for 2025 and 4.2% for 2026, while warning that "the outlook remains worrisome" with elevated financial stability risks as the property sector continues to struggle.
Global headline inflation forecasts remained largely unchanged at 4.2% for 2025 and 3.7% for 2026, though the IMF noted divergence among countries, with inflation forecasts rising in the U.S. as firms begin passing tariff costs to consumers.