IMF slashes global growth outlook on impact of US tariffs

The International Monetary Fund 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 cutoff 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.

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.

Source: AFP