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Global Perspectives
IMF World Economic Outlook, October 2025:
Slower Growth, Rising Risk, and the Role of IFCs in a Fragmenting World
The International Monetary Fund's latest World Economic Outlook (October 2025) offers a picture of an economy that continues to grow—but only just. Global output is now expected to rise by around 3.2% in 2025, a modest upgrade from April's forecast, followed by 3.1% in 2026. The report's tone is mildly optimistic. Still, the broader message is sobering: the world economy has lost much of its pre-pandemic dynamism, and the risks to medium-term growth are still tilted to the downside.
While the IMF notes that private investment and consumption have held up more strongly than anticipated, structural headwinds—from ageing populations and weak productivity to trade fragmentation and fiscal fatigue—continue to constrain the pace of expansion. In short, the global economy is resilient but running below its customary pace.
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Global Trends: Resilience Under Strain
The global economy has weathered a sequence of extraordinary shocks, from the pandemic to inflation spikes, energy disruptions, and rising geopolitical tension. Despite these pressures, activity has not collapsed. The IMF attributes this durability partly to the adaptability of the private sector, which has managed to reconfigure supply chains and sustain investment in new technologies, particularly artificial intelligence and green infrastructure.
However, beneath that resilience lies persistent unevenness. Emerging markets are still growing at a faster clip—around 4% or more—but with marked variation between Asia's dynamism and stagnation elsewhere. Advanced economies are expected to average only 1.5%, a figure that underscores how constrained fiscal and monetary space has become. The Fund's central scenario remains one of subdued but continuing growth, with inflation gradually receding. Yet it also warns of latent vulnerabilities: renewed trade tensions, mounting sovereign debt burdens, and the risk that productivity-enhancing reforms are postponed in the face of political uncertainty.
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The United States: Still the Global Anchor
Among advanced economies, the United States continues to outperform. Growth of around 2.0% in both 2025 and 2026 reflects a combination of steady household spending, robust business investment, and ongoing fiscal support through industrial and infrastructure programmes. The country's embrace of AI and technological transformation is driving a new wave of capital formation, even as higher interest rates continue to bite.
Nevertheless, the U.S. outlook is not without clouds. Tariff adjustments and trade disputes have injected new uncertainty into global supply chains, while constraints on immigration are beginning to limit labour supply in key sectors. Inflation, although moderating, remains above the Federal Reserve's comfort zone. The IMF cautions that policy settings will need to stay restrictive well into 2026 to ensure stability. For the global economy, a resilient U.S. provides a valuable offset to weaker demand elsewhere. Still, a more inward-looking trade stance and a persistently strong dollar could magnify existing imbalances in cross-border capital flows.
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China: Stabilising, But Below Trend
China's performance continues to dominate the emerging-market narrative. The IMF expects growth of around 4.8% in 2025, easing to 4.2% in 2026 as the effects of stimulus measures fade and the property downturn drags on. The economy is stabilising, but the composition of that growth has changed. A long-delayed restructuring of the real estate sector, coupled with the fiscal stress of local governments, has eroded the traditional investment-led model that powered China's ascent in previous decades.
Instead, Beijing is leaning into advanced manufacturing, clean energy, and export diversification to sustain momentum. This shift has tempered demand for imported commodities and capital goods while intensifying competition in technology and electric vehicles. For global investors, China remains a critical driver of growth, but one operating with reduced predictability and greater geopolitical exposure. The IMF's subtext is clear: China's transition may be necessary and inevitable, but it will be neither smooth nor without spillovers.
The United Kingdom: Fragile Growth, Fiscal Constraints, and Inflationary Pressure
The UK's outlook encapsulates the tension between cyclical recovery and structural weakness. The IMF's projection of around 1.3% growth in 2025 might technically represent an upgrade, but in truth, it underscores how little momentum the economy has regained. In real terms, this is anaemic expansion, barely sufficient to stabilise public finances and far below the pace needed to lift productivity or living standards.
Public debt now exceeds 100% of GDP, and with a significant proportion of that debt linked to inflation, the cost of servicing it has risen sharply. The government faces sustained wage pressures in the public sector—particularly in healthcare, education, and transport—while political resistance has made large-scale spending cuts difficult to achieve. At the same time, public investment demands in housing, infrastructure, and the energy transition remain urgent.
The result is a fiscal position that is heavy with commitments and light on flexibility.
Inflation, while easing, remains the highest in the G7, driven by service costs and wage settlements. This inflation bind leaves the Bank of England in a difficult position: hesitant to loosen monetary policy even as growth stalls. A 'higher for longer' interest-rate environment is therefore likely to persist, further squeezing household budgets and private-sector investment.
For investors, the UK retains strengths that should not be discounted—deep capital markets, strong institutions, and a credible regulatory framework. Yet these are being tested by a macroeconomic backdrop characterised by low growth, high debt, and limited fiscal space. The near-term story is one of stabilisation, but the longer-term challenge is sustainable growth.
The G7: Low Gear, Divergent Paths
Across the G7, growth remains subdued, averaging around 1.5% in 2025. The United States and the United Kingdom form the upper end of this narrow range, while Japan and parts of the euro area continue to lag. Inflation trajectories differ sharply across members, leading to asynchronous interest-rate cycles and renewed currency volatility. The IMF notes that, while inflation is receding globally, the disinflation process remains uneven. This divergence complicates policymaking and corporate planning, adding layers of uncertainty to exchange-rate and investment decisions. The result is a global financial environment in which volatility has become structural rather than cyclical.
Implications for International Finance Centres
For small, open international finance centres (IFCs), these global shifts present both challenges and opportunities. As cross-border capital becomes more cautious and more discriminating, jurisdictions that combine neutrality with credibility stand to benefit.
IFCs such as Jersey, Guernsey, Luxembourg, Singapore and the Cayman Islands offer precisely that combination: robust rule of law, transparent governance, and a proven ability to adapt to evolving international standards. In an environment where major economies are constrained by debt and political polarisation, these centres provide the stability and efficiency that global investors increasingly value.
The trend toward private capital and alternative finance will further enhance this relevance. Funds seeking flexible yet compliant domiciles for pooling debt, equity, and infrastructure investment will continue to look to well-regulated IFCs as cost-effective and reliable platforms. Meanwhile, the expansion of trade finance, receivables securitisation, and treasury management structures presents new areas of intermediation where IFCs can add value—provided their AML and transparency standards remain exemplary.
In a world where the traditional anchors of growth—the U.S., China, and the UK—are strong but strained, and where fiscal and monetary orthodoxy is under pressure, small states with strong institutions and agile policy frameworks have a rare advantage: they can act as trusted conduits for global capital when others cannot.
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Conclusion
The IMF's October 2025 World Economic Outlook reaffirms that the global economy is not sliding into crisis but is instead adjusting to a lower-growth equilibrium. The forces shaping this environment—debt, demographics, deglobalisation, and digital transformation—will define the coming decade.
For policymakers and investors alike, the message is clear. Growth is still possible, but it will be harder won. In that context, IFCs and firms that uphold transparency, efficiency, and trust will not merely endure—they will become essential infrastructure in the complex machinery of global capital flows.
Sources: International Monetary Fund, World Economic Outlook, October 2025.
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Mourant is a law firm-led, professional services business with over 60 years' experience in the financial services sector. We advise on the laws of the British Virgin Islands, the Cayman Islands, Guernsey, Jersey and Luxembourg and provide specialist entity management, governance, regulatory and consulting services.
