WORLD ECONOMIC OUTLOOK
- The International Monetary Fund (IMF) publishes its World Economic Outlook (WEO) twice a year—in April and October—and issues two interim updates in January and July. The release on 29 July was the July update to the April WEO.
- The essence of the updated report is reflected in its title: “Global Economy: Tenuous Resilience amid Persistent Uncertainty.” It delivers two key messages about the current global scenario: the world economy has shown resilience, though fragile, and its future remains clouded by ongoing uncertainty.
- Resilience here means that, despite major disruptions such as the Covid-19 pandemic, the Russia–Ukraine war, and the wave of tariffs imposed during the second Trump administration, the global economy has managed to sustain growth.
- According to the IMF’s latest projections, global growth is expected to reach 3.0% in 2025 and 3.1% in 2026, which is 0.2 percentage points higher for 2025 and 0.1 points higher for 2026 compared to the April 2025 forecast.
- However, this resilience is described as “tenuous” because it rests on uncertain foundations. While the tariff outlook is somewhat less alarming than it appeared in April—when President Trump first announced them on Liberation Day—the final tariff rates remain unclear
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- At present, much of the global policy uncertainty is originating from the United States, which is projected to lose economic momentum in 2025 compared to the robust performance of the past two years. By the close of 2025, the US GDP is expected to hover around $31 trillion, with growth slowing further to just 1.2% in 2026.
- In contrast, China—seen as the US’s primary economic rival—is likely to experience only a slight deceleration, maintaining a strong growth rate of 4.8% despite having an economy exceeding $19 trillion annually.
- India, meanwhile, remains a standout performer on the global stage, with growth projected at 6.4% in 2025. Although this is slower than its 2023 pace, sustaining a rate above 6% in a world where many major economies struggle to achieve even one-third of that puts India on a steady path to narrowing the economic gap and surpassing more developed nations in total GDP over time
- Founded in 1945, the International Monetary Fund (IMF) aims to foster sustainable growth and prosperity across its 191 member nations. It works toward this goal by promoting economic policies that strengthen financial stability and encourage monetary cooperation—both vital for boosting productivity, generating employment, and enhancing overall economic well-being.
- The IMF’s core objectives are threefold: to advance international monetary cooperation, to support the growth of global trade and economic activity, and to discourage measures that could undermine global prosperity.
- Unlike development banks, the IMF does not fund specific infrastructure or development projects.
- Instead, it offers financial assistance to countries in crisis, giving them the fiscal space to implement reforms that restore stability and growth. It also extends precautionary support to help nations avoid potential crises.
- The Board of Governors is the IMF’s highest decision-making authority, typically meeting once a year.
- Each member nation appoints one governor—usually its finance minister or central bank governor—and one alternate governor. All powers of the IMF rest with this Board, though most are delegated to the Executive Board.
- The Executive Board handles the IMF’s day-to-day operations. It consists of 25 Directors—elected either by individual member countries or groups of countries—along with the Managing Director, who chairs the Board.
- The Global Financial Stability Report (GFSR) is a flagship publication of the International Monetary Fund (IMF) that assesses the health and stability of the global financial system. It is typically released twice a year—in April and October—alongside interim updates if needed.
- The GFSR’s primary purpose is to identify emerging vulnerabilities in global financial markets, evaluate potential risks to economic stability, and suggest policy actions to mitigate those risks. It draws on financial market data, economic indicators, and policy developments from across the world, offering both a near-term outlook and a medium-term assessment.
- In its analysis, the report examines trends in areas such as credit flows, asset prices, banking sector performance, capital market conditions, and the impact of global events like geopolitical tensions or commodity price shocks.
- It also highlights systemic risks—issues that could have widespread consequences if left unaddressed—such as excessive debt levels, market volatility, or weaknesses in regulatory frameworks.
- The GFSR is widely used by governments, central banks, investors, and academics to guide policy decisions, strengthen financial safeguards, and prepare for potential crises. By providing a global perspective, it helps countries understand how interconnected financial systems are and why local policies must account for international developments
The International Monetary Fund (IMF) releases several important reports that provide insights into the global economy, financial markets, and fiscal health of member countries. Some of its key publications include:
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World Economic Outlook (WEO) – Published twice a year (April and October) with interim updates in January and July, this report analyzes global economic trends, growth projections, and policy recommendations.
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Global Financial Stability Report (GFSR) – Released twice a year, it assesses the health of the global financial system, identifies vulnerabilities, and suggests measures to safeguard stability.
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Fiscal Monitor (FM) – Also published twice a year, it examines public finance developments worldwide, offering analysis on government budgets, debt sustainability, and fiscal policies.
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External Sector Report (ESR) – An annual report that reviews global external positions, exchange rates, trade balances, and capital flows, with a focus on imbalances and their policy implications.
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Regional Economic Outlooks (REO) – Periodic reports covering specific regions such as Asia-Pacific, Sub-Saharan Africa, Europe, Middle East and Central Asia, and the Western Hemisphere, analyzing regional growth trends and risks.
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Article IV Consultation Reports – Country-specific assessments conducted annually under the IMF’s surveillance framework, evaluating economic conditions and policy advice for individual member nations.
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Global Policy Agenda – A strategic document outlining the IMF’s policy priorities and recommendations for fostering global stability and growth
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For Prelims: Rapid Financing Instrument, International Monetary Fund, Special Drawing Rights (SDRs)
For Mains: GS II - Reports
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Previous Year Questions
1.“Rapid Financing Instrument” and “Rapid Credit Facility” are related to the provisions of lending by which one of the following? (UPSC CSE 2022) (a) Asian Development Bank (b) International Monetary Fund (c) United Nations Environment Programme Finance Initiative (d) World Bank Answer (b)
2.‘Global Financial Stability Report’ is prepared by the (UPSC CSE 2016) (a) European Central Bank (b) International Monetary Fund (c) International Bank for Reconstruction and Development (d) Organization for Economic Cooperation and Development Answer (b) |
