KEY POINTS
- IMF cuts global growth forecast to 2.8% for 2025, down 0.5 percentage points from January
- US tariffs blamed for slowing global trade, halving the Fund’s trade growth outlook
- US growth revised down to 1.8% in 2025, a 0.9-point drop; expected to fall to 1.7% by 2026
- US inflation forecast raised to 3.0% this year, stalling progress towards Fed’s 2% target.
- China’s growth slashed to 4.0% in 2025, down from 5.0% in 2024
- Mexico projected to contract by 0.3%, a 1.7-point downgrade
- Canada and Japan also face weaker outlooks
- Eurozone growth cut to 0.8% in 2025; Germany expected to see zero growth
- IMF warns tariffs are driving global inflation, raising world consumer prices to 4.3% for 2025
WASHINGTON: The International Monetary Fund (IMF) on Tuesday slashed its forecast for global growth this year, citing the effect of US President Donald Trump’s new tariff policies on the world economy.
The IMF’s projections, which incorporate some but not all tariff measures introduced this year, see the global economy growing by 2.8 percent this year, 0.5 percentage points lower than the previous World Economic Outlook (WEO) forecast in January.
Global growth is then forecast to hit 3.0 percent next year, down 0.3 percentage points from January.
“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 journalists ahead of the report’s publication.
“The risks to the global economy have increased and are firmly to the downside,” he added, noting that the recent US tariff announcements had more than halved the Fund’s outlook for global trade growth this year.
The WEO was published as global financial leaders gathered in Washington for the World Bank and IMF Spring Meetings, which are hosted by the two international financial institutions at their headquarters a stone’s throw from the White House.
Given the stop-start nature to Trump’s tariff rollout, the IMF introduced a cut-off date of April 4, meaning they do not include the administration’s latest salvos, which have hiked the level of new levies against China to 145 percent.
On Tuesday, April 22 at 9:00 AM ET, the IMF will present the latest forecasts and analysis of global economic trends at the launch of the World Economic Outlook. Join us for the live press briefing. https://t.co/tfuNg7bXzv
— IMF (@IMFNews) April 20, 2025
If these policies were to be taken into account and sustained, this could significantly slow global growth, the IMF said.
Cooler US growth
The IMF slashed its outlook for US growth to 1.8 percent this year — down 0.9 percentage points from January’s forecast.
Growth in the world’s largest economy is then expected to cool further to 1.7 percent in 2026.
This slowdown was due to “greater policy uncertainty, trade tensions, and softer demand momentum,” the IMF said in the WEO report.
Gourinchas noted that the effects of tariffs would affect countries differently, acting as a supply shock in the United States that “reduces productivity and output and increase prices.”
The Fund hiked its inflation forecast for the United States this year to 3.0 percent, and to 2.5 percent next year.
It expects tariffs will cause a broader increase in global prices, slightly raising its outlook for world consumer prices to 4.3 percent for 2025, and to 3.6 percent in 2026.
Top trading partners suffer
Top US trading partners Mexico, Canada, and China are all predicted to be negatively impacted by the Trump administration’s tariffs.
The IMF expects China, the world’s second-largest economy, to see growth slump to 4.0 percent this year, down from 5.0 percent in 2024, with increased government spending failing to counteract the effect of the new levies.
The Mexican economy is now projected to contract by 0.3 percent this year, a 1.7 percentage-point reduction from January, while Canada’s growth outlook has also been sharply reduced.
Japan, the world’s third-largest economy, is expected to grow by just 0.6 percent this year and next, a sharp cut from January.
Europe’s slowdown deepens
The IMF expects the tariffs to act as a drag on growth in most European countries, with the growth outlook for the euro area cut to 0.8 percent in 2025, and 1.2 percent next year.
Germany is now projected to see no growth this year, while the outlooks for France, Britain and Italy have also been pared back.
The IMF sharply downgraded the outlook for the Middle East but still expects economic activity to pick up from 2024, as disruptions to oil production and shipping ease, “and the impact of ongoing conflicts lessens.”
In sub-Saharan Africa, growth is projected to decline slightly to 3.8 percent this year, before recovering next year.
Faced with a gloomy forecast, Gourinchas urged countries to get around the negotiating table to hammer out a deal.
“Growth prospects could improve immediately if countries ease their current trade policy stance and implement clear and predictable trade rules,” he said.
Boost growth by reducing trade doubt
In an interview with AFP, the IMF’s chief economist said that policymakers should find a way to reduce the uncertainty over trade policy kicked up by Trump’s tariff plans in order to boost global growth.
“The uncertainty in trade policy, and in policy generally right now, is a big drag on global activity,” Gourinchas told AFP on Tuesday.
“And the sooner we can lift it, the better off everyone will be,” he said, adding: “Bringing back stability, clarity, predictability to the trading system is the first order of business.”
Delay easing monetary policy
The IMF now expects 3.0 percent inflation this year, effectively stalling progress towards the US Federal Reserve’s two percent long-term inflation target.
Higher inflation “will, of course, have implications for what the central bank will need to be doing,” Gourinchas said.
If inflation developments prove to be persistent, the Fed “may have to delay easing monetary policy, or they may even have to start looking to increase and tighten the monetary policy rate,” he added.
The impact of tariffs is also “quite significant” for China, Gourinchas said, adding that the IMF expects the levies to constrain growth by around 1.3 percentage points, counteracted somewhat by the fiscal measures Beijing introduced to prop up the economy last year.
As a result, the IMF has trimmed China’s growth forecast by 0.6 percentage points, and now sees growth of just 4.0 percent this year, down sharply from the 5.0 percent growth seen in 2024.
More modest Europe downgrade
Europe is “slightly less” exposed to tariffs than the United States or China, and as such the tariff shock should be a little less pronounced, Gourinchas said.
The increased European defence spending announced in recent months should also provide “some fiscal support to economic activity in the European Union,” he added, while warning that any additional spending would still need to be paid for over the longer term.
“We need to have targeted measures, temporary measures, that are sunsetting automatically,” he said.
“When it comes to the permanent increases in defence… it has to be financed out of expenditure cuts somewhere else or new revenues,” he added. “It cannot be financed by debt.”
Risk of social unrest
The IMF warned in its report of an increased risk of social unrest due to several factors, including “dim medium-term growth prospects.”
For low-income countries, a funding squeeze combined with the effects of less foreign aid funding from the likes of the United States, could be a recipe for challenges ahead.
“There may be sectoral dislocations, and maybe sectors of activities that are hit pretty hard by the tariffs, if they remain in place,” Gourinchas said.
“And there will be calls for support so that these sectors, households and businesses can adapt and adjust.”
“Some countries have very limited fiscal space to start with,” he added.
“And so in the context in which there will be these additional demands, if they are unable to meet them, then that’s when you could see social tensions increasing.”
