World Economic Outlook 2025 by Pierre-Olivier Gourinchas - IMF Chief Economist
- sofiajones1
- May 14
- 3 min read
The global economy is entering 2025 buffeted by the strongest wave of tariff escalation and policy uncertainty since the 1930s. At a packed London Business School forum on 13 May 2025, ChangeSchool Managing Director Viren Lall attended a talk by Pierre-Olivier Gourinchas, IMF Chief Economist and lead author of the World Economic Outlook (WEO), where he lay out the stakes with clarity.
His message was sober yet actionable: trade wars are slowing growth, nudging inflation, and rattling supply chains, but smart policy and technology-driven adaptation can still deliver a more resilient global order. Drawing on the IMF’s April WEO and his remarks that evening, this blog distils four themes - economic trends, geopolitical influences, technological currents, and policy implications, that will shape strategic decisions in the year ahead.
1. Economic Trends: Growth Downshift, Inflation Cross-currents
The most immediate headline is a marked downgrade in world growth. The IMF now projects global GDP to expand by 2.8 % in 2025, almost a full point below the January update, as higher tariffs bite into trade volumes and confidence. Trade itself is expected to grow by only 1.7 %, barely half last year’s pace, undercutting export-led models across advanced and emerging economies.
Inflation, meanwhile, is drifting along two tracks. In tariff-imposing economies such as the United States, import levies act like a supply-side tax: they push 2025 inflation up roughly one percentage point, toward 3 %, while cutting growth to about 1.8 %. In China, where the shock comes through weaker external demand, the effect is disinflationary: growth drops to 4 % and CPI pressures ease by nearly 0.8 percentage points. Europe falls between those poles, with euro-area growth trimmed to 0.8 % and only minor price effects.
“Inflation has become largely a rear-view-mirror phenomenon,” Pierre said, noting that the post-COVID price spike was fading even before tariffs hit. The risk now is not runaway prices but de-anchoring markets losing faith in central-bank credibility if supply shocks persist. That explains the IMF’s dual call for vigilance against renewed price spikes and readiness to ease should disinflation resume.
2. Geopolitical Influences: Tariffs, Uncertainty and the Dollar
Tariff politics are more than a bilateral U.S.– China story. The new WEO treats them as a generalised policy shock that raises global uncertainty and suppresses investment. Pierre underscored that businesses confronted with “suddenly uncertain market access” tend to pause capex, run down inventories, and delay hiring. My notes record his succinct formula: uncertainty = inactivity.
Financial channels amplify the shock. Safe-haven flows into U.S. assets push the dollar higher, tightening conditions for emerging markets that borrow in dollars. Pierre estimated a 1.3 percentage-point hit to China’s growth and warned that Canada-Mexico trade could fall 7 % if bilateral balancing clauses are strictly enforced. Portfolio investors, he added, are staging a “retrenchment of the bullish view of the U.S. economy,” a shift already visible in softer equity multiples and wider credit spreads.
3. Technological Currents: Supply-Chain Re-wiring and Digital Finance
Technology appears in Pierre’s narrative less as a Silicon Valley spotlight than as the quiet wiring of global value chains. Tariffs collide with dense production networks where components cross borders multiple times, so a single levy propagates “with multiplier effects up and down the chain”. That fragility pushes firms to diversify suppliers, embrace additive manufacturing for local substitution, and deploy AI-driven logistics to map alternative routes.
A second tech angle is finance: Pierre likened the rise of stable coins to the early-1960s euro-dollar market, hinting that tokenised dollars could lubricate trade even when banks retreat. The parallel is provocative- a reminder that digital payment rails may soften some frictions caused by policy walls.
4. Policy Implications: Buffers, Investment and a Rules-Based Reset
If the diagnosis is sobering, the prescription is clear. Pierre called for rebuilding fiscal buffers eroded by pandemic stimulus, warning that governments face fresh spending demands- from defence in Europe to climate transitions everywhere- just as debt-to-GDP ratios climb. The IMF, therefore, urges:
United States: Pair tariff scepticism with deficit reduction to free monetary space.
China: shift from export dependence to domestic-demand insurance via stronger social safety nets.
European Union: lean into public investment and R&D to offset external headwinds.
Over the medium term, he argued, the most growth-friendly move would be to “restore trade-policy stability”- a credible recommitment to a rules-based system that can unlock stalled FDI and revive trade growth toward its historical 2.8 % trend. Regional agreements can help, but they are complements, not substitutes, for an open multilateral order.
In his closing remarks, he noted guarded optimism: “History shows that when rules are rebuilt and buffers restored, growth revives.”
