Market Speaks: IMF highlights trade tensions in its annual report, urges growth-oriented reforms to lift productivity

International Monetary Fund or IMF stated in its latest Annual Report that technological shifts and the artificial intelligence revolution are generating significant adjustment even as they promise new opportunities. Natural disasters and more frequent extreme weather continue to impose severe macroeconomic costs on many countries. The trade tensions and associated tariffs are exacerbating the low-growth/high-debt outlook. The IMF lowered its near-term growth forecasts in April to 2.8 percent this year and 3 percent for 2026, and five-year growth forecasts remain at their lowest in decades.

Global inflation is falling but at a slower and less synchronous pace than previously. This is leading to more policy divergence between central banks, with knock-on effects on asset prices and exchange rates. Low-income countries have been hit particularly hard by the current external environment. After demonstrating resilience through a series of shocks—including the COVID-19 pandemic and spillovers from Russia’s war in Ukraine—they are implementing difficult and much-needed reforms to restore macroeconomic stability.

Policymakers must rapidly confront three key priorities. First, they need to resolve trade tensions and address underlying imbalances. The second priority is to act together to safeguard economic and financial stability. The third priority is to double down on growth-oriented reforms to lift productivity and potential output.

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