The IMF reckons the global economy remains ‘in flux’, but the Trump effect is real – and Australians aren’t fooled

The IMF's latest world economic outlook, titled "Global Economy in Flux, Prospects Remain Dim," moderately upgraded US and Australian growth forecasts to 2.0% and 1.8% respectively, attributing some early 2025 global activity to pre-tariff order acceleration, while noting persistent high trade uncertainty. Concurrently, a significant 'Trump effect' is observed in tourism, with Australian travel to the US declining and Tourism Economics revising its 2025 international arrival forecast for the US from a 9% rise to an 8.2% fall, indicating a perceived decrease in the nation's attractiveness.

Analysis

The International Monetary Fund (IMF) has moderately upgraded its economic growth forecasts for the US to 2.0% and Australia to 1.8% for 2025, up from 1.8% and 1.6% respectively. This temporary boost to global activity in early 2025 is attributed to businesses accelerating orders ahead of anticipated tariff implementations. Despite these revisions, the IMF's October 2025 outlook remains titled "Global Economy in Flux, Prospects Remain Dim," reflecting underlying concerns.

While trade uncertainty has slightly decreased since April, it remains significantly elevated, registering 3,860% higher than a year ago. This persistent volatility, despite the initial muted market impact of tariff announcements, suggests an environment far from normal, posing ongoing challenges for long-term planning and investment. The article highlights that investors have largely carried on, potentially underestimating the sustained higher tariff levels.

A distinct "Trump effect" is evident in the tourism sector, with Australian travel to the US declining by 10% in August year-over-year and 3% for the June-August period. Tourism Economics has drastically revised its 2025 forecast for international arrivals to the US from a projected 9% rise to an 8.2% fall, indicating a perceived decrease in the nation's attractiveness. This sentiment is reinforced by a 28% drop in Australian travel to the US compared to pre-pandemic levels, aligning with countries experiencing war or civil unrest.

Key Decisions for Investors

• Monitor ongoing global trade policy developments and their potential for sudden shifts, as persistent high uncertainty could impact supply chain stability and corporate earnings
• Evaluate companies with significant exposure to US inbound tourism, given the revised forecast for an 8.2% decline in international arrivals for 2025
• Consider the temporary nature of the early 2025 economic boost from accelerated orders, and assess whether current market valuations adequately discount future policy-driven volatility