12:23 PM EST, 01/17/2025 (MT Newswires) -- The International Monetary Fund on Friday increased its global and US economic growth expectations for this year, but said the balance of risks to the overall outlook is tilted to the downside in the medium term.

The agency now projects 2025 global real gross domestic product growth at 3.3%, up from a 3.2% gain estimated in October. It continues to see 2026 growth at 3.3%, compared with a 3.2% rate projected for 2024. The IMF called its latest outlooks are below the historical growth average of 3.7%.

The US real GDP growth rate for this year is now pegged at 2.7%, up from the previous outlook of 2.2%, amid robust demand conditions that reflect "strong wealth effects" and a less restrictive monetary policy stance, the IMF said. The agency upgraded its 2025 economic growth estimates for countries like China and Russia, while Germany, France, Italy and Canada were among those seeing downgrades.

In the medium term, world growth is expected to be lower than its 2025-26 average and the five-year-ahead projections at about 3%, the IMF said.

"European economies could slow more than anticipated, especially if investors grow more concerned about public debt sustainability in more vulnerable countries," IMF Economic Counsellor Pierre-Olivier Gourinchas said in a blog post. "In China, should fiscal and monetary measures prove insufficient to address domestic weakness, the economy is at risk of a debt-deflation stagnation trap, where falling prices raise the real value of debt, undermining activity further."

US President-elect Donald Trump is scheduled to take office Monday.

Gourinchas said that many of potential policy changes under the new Trump administration are hard to quantify accurately. "Some indicated policies, such as looser fiscal policy or deregulation efforts, would stimulate aggregate demand and increase inflation in the near term, as spending and investment increase immediately," Gourinchas wrote. "Other policies, such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures."

Potential growth in demand and shrinking supply would reignite price pressures in the US, though its impact on near-term economic output would be unclear, according to Gourinchas. "Higher inflation would prevent the Federal Reserve from cutting interest rates and could even require rate hikes that would in turn strengthen the dollar and widen US external deficits."

Last month, the US central bank reduced its benchmark lending rate by 25 basis points and flagged fewer cuts ahead than projected in September. The Federal Open Market Committee's Summary of Economic Projections at the time showed that policymakers raised their 2025 US economic growth outlook to 2.1% from 2%.

"There is a risk that excessive deregulation could also weaken financial safeguards and increase financial vulnerabilities, putting the US economy on a dangerous boom-bust path," Gourinchas said. Restrictive trade policies and stringent migration curbs would elevate medium-term risks to economic output, he added.

Fiscal policy efforts for several countries have either been delayed or are inadequate to stabilize debt dynamics, calling for an urgency to restore fiscal sustainability, according to Gourinchas.

"Unilateral policies that distort competition -- such as tariffs, nontariff barriers, or subsidies --rarely improve domestic prospects durably," Gourinchas wrote. "They are unlikely to ameliorate external imbalances and may instead hurt trading partners, spur retaliation, and leave every country worse off."

The IMF sees world inflation easing to 4.2% this year and 3.5% in 2026 from the 6.7% and 5.7% rates projected for 2023 and 2024, respectively.