The IMF has published its April World Economic Outlook Report (WEO). The first section of the report covers topics such as the current economic situation, the effects of tariffs, and what countries need to do to reduce their effects. Growth and inflation estimates for 2025 and 2026 were shared as usual. But this time, there is a different situation than usual. High customs duties have lowered economic growth estimates more than ever before. Let me say this from the beginning, the IMF is more concerned with the slowdown in economic activity than inflation.
IMF President Kristalina Georgieva also included changing world production relations in her opening speech at the spring meetings. In fact, the change in these production relations also explains phenomena such as the rise in nationalism, the retreat from globalization, and the success of populist leaders. Namely; the model of producing different parts of each product in places with lower wages did not affect everyone equally.
Production, especially in some sectors of developed countries, has decreased or ended, and this production has shifted to other countries. This has negatively affected the workers doing these jobs and real wages have fallen. Non-tariff barriers, government aid to certain sectors (especially China) have had a detrimental effect on international competition. Security concerns of countries have caused their desire to be self-sufficient to revive. These have also paved the way for a return to a production economy domestically.
Countries have been caught on the wrong foot by these trade wars compared to previous crises. Their public debt is very high. While the ratio of public debt to GDP was around 75% in the early 2000s for developed countries, it is currently around 110%, and while this ratio was around 50% in the same period for developing countries, it has now exceeded 75%. This restricts the room for maneuver of governments. Because, especially while trade wars continue, certain industrial sectors may need to be supported by governments. This requires a good and fair strategy and public resources, namely fiscal space.
Although much has been written and discussed about the end of the US hegemony, some figures do not confirm this. For example, the US is still ahead in terms of productivity and continues to develop rapidly. In 2011, total factor productivity was 100 for the rest of the world and the US, while this figure is currently around 115 for the US and 108 for the rest.
As for the report; the IMF estimated in its January 2025 report that world economic growth would be 3.3% for 2025 and 3.3% for 2026. In the new report dated April, these figures were reduced to 2.8% and 3%, respectively. We see that the downward revision in growth figures was made for the whole world except for a few countries like Spain. In inflation, there was an upward revision of 0.4 points for developed countries according to the January report. While these revisions were 0.7 and 1.0 points in the UK and the US, respectively, no revision was made for the euro zone. In developing Asia, the inflation estimate was revised downward by 0.5 points. The biggest factor here is the prices that have not increased in China. The only major country that has been able to exceed the pre-Covid growth trend after Covid is the US. Other countries have not been able to recover. The situation is still bad in Europe, which is dependent on gas due to the energy shock. Especially in countries such as Italy and Germany, which are based on manufacturing. Spain is one of the countries that stands out positively. The US economy has become a net energy exporter. The recent appreciation of the Euro can be seen as an advantage for these energy importing countries.
