IMF revises Pakistan's 2025 growth forecast downwards to 3%

The International Monetary Fund (IMF) has revised its growth forecast for Pakistan, projecting a 3% increase in the country's economy for 2025, down from an earlier estimate of 3.2%.

Meanwhile, India is expected to sustain a growth rate of 6.5%, according to the IMF's recent "World Economic Outlook Update: Global Growth – Divergent and Uncertain."

The IMF's updated projections also indicate that Pakistan's GDP growth will remain at 4% in 2026. The latest downgrade reflects ongoing economic challenges in the country, although the IMF did not specify the reasons for the revision.

Globally, the IMF forecasts a growth rate of 3.3% for both 2025 and 2026, slightly below the historical average of 3.7%. The IMF's chief economist, Pierre-Olivier Gourinchas, noted that the global economy continues to experience diverging growth patterns, with stronger-than-expected performance in the United States partially offsetting weaker results in other major economies.

Inflationary trends are expected to ease in the coming years, with the IMF projecting global inflation to decline to 4.2% in 2025 and 3.5% in 2026. However, the IMF cautioned that inflation remains stubbornly high in some regions, despite a global trend of disinflation.

The report also predicts that the U.S. economic growth will be 2.7% this fiscal year, with a forecast of 4.5% growth. The UK economic growth is likely to be 1.6% this fiscal year, with a forecast of 1.5% growth next fiscal year.

Risks to the Outlook

In the medium term, global growth is expected to be lower than the 2025–26 average, with a forecast of about 3 percent. Near-term risks vary by country: the United States faces upside risks, while most other economies face downside risks due to policy uncertainty and ongoing adjustments, especially in energy and real estate.

Protectionist policies, like new tariffs, could worsen trade tensions, lower investment, reduce market efficiency, and disrupt supply chains, affecting growth in both the near and medium term.

In the United States, looser fiscal policy, such as tax cuts, could boost economic activity in the near term but may require larger fiscal adjustments later, potentially disrupting markets and the economy. Higher borrowing could increase global demand for capital, raising interest rates and possibly depressing economic activity elsewhere.

Deregulation in the United States could boost demand and supply, but excessive rollback of regulations may lead to boom-bust dynamics and risks of capital outflows from emerging markets. Other supply-side shocks, like reduced migration, could lower potential output and raise inflation.

Near-term US economic boosts could highlight divergent growth patterns across economies. Tariffs and labor force reductions could negatively impact global and US activity in the medium term. Uncertainties are high, with varying effects across countries influenced by trade and financial linkages, policy responses, and different policy combinations.

Inflation dynamics could be shaped by these factors, with uncertain effects from tariffs. Recent studies show high pass-through to import prices but lower and uncertain pass-through to consumer prices. Several factors suggest higher inflation risks from tariff hikes this time, including recent significant inflation surges, higher inflation expectations, and cyclical positions of major economies.

Renewed inflationary pressures could prompt central banks to raise policy rates, worsening fiscal, financial, and external risks. A stronger US dollar could alter capital flow patterns and global imbalances, complicating macroeconomic trade-offs.

Geopolitical tensions, like conflicts in the Middle East and Ukraine, could intensify, leading to spikes in commodity prices, affecting trade routes, and raising food and energy prices. Commodity-importing countries may face stagflationary impacts compounded by an appreciating dollar.

On the upside, renegotiating trade agreements and forging new deals could boost global economic activity, relieve uncertainty, and support investment and medium-term growth. Structural reforms in many countries could prevent divergence from better-performing peers, increasing labor supply, reducing misallocation, enhancing competition, and supporting innovation, raising medium-term growth.