By Staff Reporter
KARACHI: The International Monetary Fund (IMF) cut Pakistan’s growth forecast to 2.6 percent for the current fiscal year, down from 3 percent, as the US new tariffs, now at their highest levels in a century, on Pakistani goods threaten the country’s export-driven economy.
The revision highlights the vulnerability of Pakistan’s textile sector, which faces a 29 percent tariff in the U.S., its largest market, following President Donald Trump’s recent trade policy shift.
In its updated World Economic Outlook, rushed out in just 10 days after the tariff announcement, the IMF pointed to rising global trade tensions as a key drag on growth. Pakistan, where textiles make up over 50 percent of export revenue, is particularly exposed.
In January, the IMF had lowered the country’s growth estimate to 3 percent for the current fiscal year, down from 3.2 percent it had projected previously.
The fund now sees inflation climbing to 5.1 percent this year and 7.7 percent in 2026, fueled by costlier imports and supply chain pressures, though it projects a modest recovery to 3.6 percent growth next year if trade stabilizes.
The unemployment rate is projected to decline to 8.0 percent in 2025 from 8.3 percent in 2024, and further to 7.5 percent in 2026. The current account deficit is expected to shrink to 0.1 percent of GDP in 2025 from 0.5 percent in 2024, before increasing to 0.4 percent in 2026. The fiscal deficit is projected to narrow to 5.6 percent of GDP in 2025 from 6.8 percent in 2024.
The IMF’s broader outlook isn’t much brighter. Global growth is now pegged at 2.8 percent for 2025, down 0.5 points from prior estimates, with trade growth slashed to 1.7 percent, half last year’s pace.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas told reporters.
The IMF said the swift escalation of trade tensions and “extremely high levels” of uncertainty about future policies would have a significant impact on global economic activity.
“It’s quite significant and it’s hitting all the regions of the world. We’re seeing lower growth in the US, lower growth in the euro area, lower growth in China, lower growth in other parts of the world,” Gourinchas told Reuters in an interview.
“If we get an escalation of trade tensions between the US and other countries, that will fuel additional uncertainty, that will create additional financial market volatility, that will tighten financial conditions,” he said, adding the bundled effect would further lower global growth prospects.
Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.
“We are not seeing a stampede or a run to the exits,” Gourinchas said. “We’re not concerned at this stage about the resilience of the international monetary system. It would take something much bigger than this.”
However, medium-term growth prospects remained mediocre, with the five-year forecast stuck at 3.2 percent, below the historical average of 3.7 percent from 2000-2019, with no relief in sight absent significant structural reforms.
The IMF slashed its forecast for growth in global trade by 1.5 percentage point to 1.7 percent, half the growth seen in 2024, reflecting the accelerating fragmentation of the global economy.
Sharply increased tariffs between the US and China will result in much lower bilateral trade between the world’s two largest economies, Gourinchas said, adding, “That is weighing down on global trade growth.”
Trade would continue, but it would cost more and it would be less efficient, he said, citing confusion and uncertainty about where to invest and where to source products and components.
“Restoring predictability, clarity to the trading system in whatever form is absolutely critical,” he told Reuters.
The IMF forecast growth in the Euro Area would slow to 0.8 percent in 2025 and 1.2 percent in 2026, with both forecasts about 0.2 percentage points down from January. It said Spain was an outlier, with a 2.5 percent growth forecast for 2025, a 0.2 percentage point upward revision, reflecting strong data.
Offsetting forces included stronger consumption due to rising wages and a projected fiscal easing in Germany after major changes to its “debt brake”. The IMF cut its growth forecast for Germany by 0.3 percentage point to 0 percent in 2025, and by 0.2 percentage point to 0.9 percent in 2026.
Growth in Britain would hit 1.1 percent in 2025, 0.5 percentage point below the January forecast, edging higher to 1.4 percent in 2026, reflecting the impact of recent tariff announcements, higher gilt yields and weaker private consumption.
Trade tensions and tariffs were expected to shave 0.5 percentage point off Japan’s economic activity in 2025, compared to the January forecast, with growth projected at 0.6 percent.
China’s growth forecast was cut to 4 percent for 2025 and 2026, reflecting respective downward revisions of 0.6 percentage point and 0.5 percentage point from the January forecast.
Gourinchas said the impact of the tariffs on China, hugely dependent on exports, was about 1.3 percentage points in 2025, but that was offset by stronger fiscal measures.
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