IMF cuts growth forecasts for most countries in wake of trade war

The IMF released an update to its World Economic Outlook compiled in just 10 days after U.S. President Donald Trump announced universal tariffs on nearly all trading partners and higher rates – currently suspended – on many countries.

It cut its forecast for global growth by 0.5 percentage point to 2.8% for 2025, and by 0.3 percentage point to 3% from its January forecast that growth would reach 3.3% in both years.

It said inflation was expected to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3% in 2025 and 3.6% in 2026, with “notable” upward revisions for the U.S. and other advanced economies.

The IMF called the report a “reference forecast” based on developments through April 4, citing the extreme complexity and fluidity of the current moment.

“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 reporters.

The IMF said the swift escalation of trade tensions and “extremely high levels” of uncertainty about future policies would have a significant impact on global economic activity.

“It’s quite significant and it’s hitting all the regions of the world. We’re seeing lower growth in the U.S., lower growth in the euro area, lower growth in China, lower growth in other parts of the world,” Gourinchas told Reuters in an interview.

“If we get an escalation of trade tensions between the U.S. and other countries, that will fuel additional uncertainty, that will create additional financial market volatility, that will tighten financial conditions,” he said, adding the bundled effect would further lower global growth prospects.

Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.

“We are not seeing a stampede or a run to the exits,” Gourinchas stated, adding, “We’re not concerned at this stage about the resilience of the international monetary system. It would take something much bigger than this.”

However, medium-term growth prospects remained mediocre, with the five-year forecast stuck at 3.2%, below the historical average of 3.7% from 2000-2019, with no relief in sight absent significant structural reforms.

The IMF slashed its forecast for growth in global trade by 1.5 percentage point to 1.7%, half the growth seen in 2024, reflecting the accelerating fragmentation of the global economy.

Sharply increased tariffs between the United States and China will result in much lower bilateral trade between the world’s two largest economies, Gourinchas said, adding, “That is weighing down on global trade growth.”

Trade would continue, but it would cost more and it would be less efficient, he stated, citing confusion and uncertainty about where to invest and where to source products and components.

“Restoring predictability, clarity to the trading system in whatever form is absolutely critical,” he told Reuters.