The International Monetary Fund (IMF) has made a significant downward revision to its global growth projections for the next two years, citing the rising tariffs, particularly those introduced by the United States, as a major factor. The IMF's World Economic Outlook, revised on Tuesday, reduced global growth forecasts to 3% for 2024 and 2.8% for 2025. This marks a 0.3 percentage point reduction for 2024 and a more substantial 0.5 percentage point drop for 2025. The IMF’s updated outlook reflects the deepening concerns about the global economy, with growing risks of inflation, policy uncertainty, and the escalating trade tensions that are affecting multiple major economies worldwide.
IMF’s chief economist Pierre-Olivier Gourinchas commented that the global economy is entering a "new era," where the economic systems that have governed global trade for the past 80 years are being fundamentally reshaped. This new phase is primarily driven by the rapid escalation of trade barriers, particularly the unprecedented rise in tariffs under the administration of former President Donald Trump, which have placed increasing pressure on the global economy. The report emphasizes that this shift in trade dynamics, combined with the growing volatility in global markets, is adding substantial challenges to economic recovery, making it more difficult for countries to achieve stable growth and inflation targets.
One of the most critical revisions in the IMF's updated outlook was to global trade growth. The IMF now expects global trade to grow at just 1.7% in 2025, a steep decline from the 3.2% forecasted earlier. This is nearly half the growth rate projected for 2024. The forecast highlights the growing fragmentation of global supply chains, a direct consequence of rising tariffs, trade barriers, and protectionist measures taken by various countries. The economic impact of these policies is expected to persist, with countries increasingly relying on regional trade blocs and reshoring manufacturing capabilities, which will further hinder the pace of global economic recovery.
In terms of regional impacts, the IMF's report painted a grim picture for the United States, forecasting that its growth will slow significantly over the next few years. The IMF now expects the US economy to grow by just 1.8% in 2025, a sharp drop from the earlier estimate of 2.8% for 2024. The continued uncertainty surrounding US trade policies, especially the impact of tariffs on imports and exports, is expected to weigh heavily on US growth. Additionally, inflation in the US is projected to hit 3% in 2025, a full percentage point higher than earlier estimates. While the IMF does not foresee a full-blown recession in the US, it has raised the risk of a recession, which is now pegged at 37%, up from 25% previously.
For US trade partners, the IMF's report suggests significant negative impacts as well. Canada's growth forecast for 2025 has been revised down to 1.4%, and it is expected to grow at just 1.6% in 2026. Mexico's economic growth is expected to contract by 0.3% in 2025, before recovering with a 1.4% growth rate in 2026. In Europe, the situation is no better. The Eurozone is expected to see its growth slow down to just 0.8% in 2025, with Germany's economy forecast to stagnate. Spain, however, is projected to outperform other parts of the Eurozone, experiencing a faster rate of growth.
The UK, too, will bear the brunt of these rising trade tensions. The IMF now expects the UK’s growth to be limited to 1.1% in 2025, a significant downgrade from previous forecasts. The IMF pointed to several key factors contributing to the UK's sluggish growth, including higher borrowing costs and weak private consumption, which are expected to dampen overall economic activity.
In Asia, countries like Japan and China are also under pressure due to escalating trade tensions. Japan's growth is forecast to slow by 0.5 percentage points in 2025, with the economy growing at just 0.6%. China, which is heavily reliant on exports, has been significantly impacted by rising tariffs, particularly from the United States. The IMF now forecasts China's growth to be 4% in both 2025 and 2026, a reduction from earlier projections. Despite these challenges, the IMF acknowledged that China’s government has been ramping up fiscal support to cushion the economic blow from the trade tensions.
The IMF's report also discussed the broader implications for inflation. Global inflation is expected to remain higher than previously anticipated, with the IMF predicting that inflation will ease only gradually. The IMF now expects inflation to be 4.3% globally in 2025, with a slight decrease to 3.6% by 2026. These levels of inflation, though lower than the highs seen during the pandemic, still present challenges for central banks around the world, which will need to balance efforts to control inflation with the need to support economic growth.
The IMF’s updated outlook underscores a new phase of economic uncertainty and volatility, fueled by rising tariffs and trade tensions, particularly between the US and its major trading partners. With global growth forecasts downgraded and inflation expected to remain persistently high, the world economy faces an uphill battle to recover from the disruptions caused by the pandemic, geopolitical tensions, and the ongoing trade disputes. Unless there is a de-escalation in trade tensions and a stabilization of global economic policies, the global economy is expected to face continued challenges in the years ahead.
