Global Growth Outlook Dims as Trade Uncertainty Mounts, IMF Warns

Southeast Asian economies, including Thailand, face significant headwinds from escalating trade disputes

 

The International Monetary Fund (IMF) has released its latest World Economic Outlook update, painting a less rosy picture for global growth amidst increasing uncertainty surrounding international trade policies.

 

In a move reflecting the precarious state of affairs, the IMF presented three distinct scenarios for global GDP in its report published on April 22nd, Washington D.C. time.

 

This multi-pronged forecast marks a departure from recent years, highlighting the profound impact of escalating trade tensions.

 

The three scenarios outlined by the IMF include a "Reference Forecast," a projection made before the United States announced retaliatory tariffs on April 2nd, 2025, and another formulated after the US decided to postpone these tariffs for 90 days on April 9th, 2025.

 

Under its central "Reference Forecast," the IMF anticipates the global economy to expand by 2.8% in 2025 and 3.0% in 2026. 

 

This projection takes into account tariff measures announced between February 1st and April 4th, 2025, factoring in both the direct consequences of these trade barriers and the knock-on effects through interconnected trade networks.

 

The forecast also considers heightened uncertainty, dwindling confidence, and the mitigating influence of fiscal and monetary policies in certain nations.

 

A more optimistic scenario, calculated before the US tariff announcement on April 2nd, projected global growth at a more robust 3.2% for both 2025 and 2026.

 

This figure is only marginally lower than the IMF’s January 2025 forecast, with the key differences lying in assumptions about trade policy announcements, the level of instability, and fluctuating commodity prices.

  

This scenario only factored in trade policies announced between February 1st and March 12th, 2025, and assumed a lower level of uncertainty compared to subsequent calculations.

 

The third scenario, assessed after the US tariff delay on April 9th, forecasts global growth at approximately 2.8% in 2025 and 2.9% in 2026.

 

This incorporates tariff measures announced after April 4th, which were not included in the initial reference forecast. It accounts for the 90-day tariff delay while maintaining a baseline 10% tariff on all countries and includes the impact of retaliatory tariff increases between China and the US.

 

While yielding a similar overall global growth figure to the initial reference forecast, this scenario anticipates differing growth patterns across individual economies, particularly with China and the US expected to bear a greater brunt.

 

It's worth noting that the IMF’s January 2025 World Economic Outlook had previously pegged global growth for 2025 at 3.3%, an upward revision from the 3.2% projected in October 2024.

 

However, these earlier figures did not factor in the potential disruption from the anticipated US tariffs.

 

The IMF has significantly revised down its economic growth projections for the ASEAN-5 bloc (Indonesia, Malaysia, Philippines, Singapore, and Thailand) in its reference forecast.

 

Growth is now expected to reach 4.0% in 2025, a considerable drop from the 4.6% forecast in January. For 2026, the outlook has also been lowered to 3.9%, down from the previous 4.5% estimate.

 

The report highlights that after a marked slowdown in 2024, the economies of emerging market and developing countries in Asia are expected to see a "continued decline" to 4.5% this year and 4.6% the next.
  

Of particular concern is the ASEAN region, identified as one of the most vulnerable to the US retaliatory tariffs implemented in April due to its strong trade links with directly affected nations like China and the United States.

 

For Thailand, the IMF now forecasts a meagre 1.8% economic expansion in 2025, a sharp decline from the 2.9% predicted in January.

 

Worryingly, Thailand is the only ASEAN-5 nation for which the IMF has slashed its GDP forecast to below 2%. A further dip is anticipated in 2026, with growth projected to fall to just 1.6%.

 

Vietnam is also expected to feel the pinch of the escalating trade disputes, with the IMF downgrading its 2025 GDP forecast to a mere 5.2%, down from the 6.1% anticipated late last year. A further reduction to just 4% is projected for 2026.

 

Meanwhile, InnovestX Research, a division of Siam Commercial Bank (SCB), echoes the downward trajectory for the global economy, albeit with a more pessimistic outlook, forecasting a global growth rate of just 2.5%.

 

The impact on Thailand is deemed particularly severe given its high reliance on exports, which constitute 70% of its GDP.

 

While the IMF has lowered its forecast for Thai economic growth to a mere 1.8% (a 1.1 percentage point reduction), the lowest among developing Asian nations, InnovestX anticipates an even more pronounced impact, estimating growth this year at a paltry 1.4%.

 

InnovestX suggests that the IMF has historically underestimated the severity of economic downturns, implying that the actual consequences could be far more damaging, potentially leading to stagflation in some economies.

 

A crucial factor influencing inflation will be the longevity of the tariff measures, determining whether producers and retailers opt to pass on increased costs to consumers. If the tariffs appear to be long-lasting, businesses may be more inclined to hike prices for consumers.

 

In conclusion, InnovestX suggests a strong likelihood of further downward revisions to the IMF’s global economic forecast, given the significant uncertainty stemming from the trade war and the potential for it to morph into a currency war.

 

Furthermore, on the inflation front, the IMF anticipates US inflation to surge by over 100 basis points (from 2% to 3%, exceeding InnovestX’s own projection of an increase from 2.7% to 3.2%, potentially reaching 3.6% in the fourth quarter), making it increasingly challenging for the Federal Reserve to implement interest rate cuts.

(2025/04/23-00:00)