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The International Monetary Fund (IMF) issued a warning on Tuesday, suggesting that both the U.S. and global economies are likely to experience a significant slowdown, primarily as a result of tariffs introduced by U.S. President Donald Trump and the uncertainty they have generated.
According to the IMF’s latest World Economic Outlook, the global economy is projected to grow by only 2.8 percent this year, a downward adjustment from an earlier forecast of 3.3 percent made in January. Additionally, for 2026, the growth estimate has been revised to 3.0 percent, again lower than the previous estimate of 3.3 percent.
In particular, the two largest economies, the United States and China, are projected to experience weakened growth rates. The IMF anticipates that the U.S. will see only a 1.8 percent economic growth this year, a significant decline from the previous forecast of 2.7 percent, which also represents a full percentage point decrease from expected growth in 2024.
While a recession in the U.S. is not predicted by the IMF, the risk has been raised to about 40 percent, up from 25 percent. Meanwhile, China’s growth is expected to be 4.0 percent this year and next, slightly lower than earlier projections.
“We are entering a new era,” stated Pierre-Olivier Gourinchas, the chief economist at the IMF. “This global economic system that has operated for the last 80 years is being reset.”
The IMF’s forecasts highlight the broad implications of the tariffs and their associated uncertainties, which have impacted nearly every country worldwide. The recent increases in U.S. import taxes have raised average duties to about 25 percent, marking the highest average level in a century.
These projections align closely with the expectations of many private-sector economists, with some showing heightened concern regarding the probability of a recession. For instance, economists at JPMorgan place the likelihood of a U.S. recession at 60 percent. Furthermore, the U.S. Federal Reserve has also indicated that economic growth may decline to 1.7 percent this year.
The IMF, a global organization made up of 191 member nations, aims to facilitate economic growth and financial stability while striving to alleviate global poverty.
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U.S. to Face Supply Shortages
Gourinchas indicated that the increased unpredictability surrounding import tariffs prompted the IMF to devise multiple possible scenarios regarding future growth. These forecasts were finalized on April 4, shortly after the Trump administration announced comprehensive tariffs on nearly 60 countries, including broad 10 percent import duties.
The implementation of these duties was temporarily paused on April 9 for 90 days. However, Gourinchas noted that this suspension did not significantly alter the forecasts, as the U.S. and China have maintained high tariffs against one another during this period.
The administration has imposed various tariffs affecting numerous sectors, including automobiles, steel, and aluminum, along with 25 percent duties on most imports from Canada and Mexico. Additionally, tariffs on nearly all imports have been set at 10 percent, with a notable 145 percent duty on goods originating from China, although smartphones and computers have been exempted. In retaliation, China has enacted 125 percent tariffs on U.S. goods.
The uncertainty regarding the Trump administration’s future decisions is anticipated to further strain both the U.S. and global economies, according to the IMF. As most traded goods are parts integral to the production of final products, the tariffs may disrupt supply chains in a manner reminiscent of the challenges faced during the pandemic, as Gourinchas highlighted in a blog post.
“In the face of uncertain market access, companies are likely to hold off on new investments and cut back on spending in the short term,” he mentioned.
The likely repercussions of U.S. tariffs are also set to extend to less-developed nations, such as Mexico, whose economy is now expected to contract by 0.3 percent this year, as opposed to a prior forecast of 1.4 percent growth. Similarly, South Africa’s economic growth projection has been adjusted down to 1.0 percent, down from 1.5 percent earlier this year. While it faces a supply shock, Gourinchas noted that China’s economy will encounter a dip in demand as U.S. imports of its exports decline.
Inflation is expected to climb in the United States, with projections indicating it could reach around three percent by year-end, whereas inflation will remain relatively stable in China, according to the IMF’s findings.
China’s Economy to Bear the Brunt of Tariffs
In his blog post, Gourinchas acknowledged a prevalent sentiment that globalization has adversely affected domestic manufacturing jobs, conceding that “there is some merit to these grievances.” However, he attributed the underlying causes of employment decline more to technological advancement and automation than to globalization.
He noted that countries like Germany, which maintain a goods trade surplus, and the U.S., which has a trade deficit, have both experienced relatively stagnant factory output in recent decades, despite automation-driven decreases in manufacturing employment.
The IMF predicts that the tariffs will significantly dent China’s economy, though it also estimates that government spending initiatives in China will help mitigate the overall impact.
In comparison, the European Union is anticipated to grow at a slower pace, but the effects of tariffs will be somewhat buffered, partly due to lower U.S. duties than those imposed on China. Enhanced government spending in Germany is expected to further ease the impact.
The economies of the 27 member countries that utilize the euro are projected to expand by 0.8 percent this year and 1.2 percent next year, revising earlier growth estimates down by 0.2 percent for both years. Japan’s growth forecast has similarly been downgraded to 0.6 percent this year and next, showing declines of 0.5 percent and 0.2 percent respectively since January.
Additionally, the IMF has expressed concerns over increasing risks to global financial stability, which accompany the deteriorating economic outlook. It has highlighted that certain stock and bond valuations remain high, despite the recent market turmoil triggered by tariffs, indicating vulnerability to further market corrections.
Moreover, the IMF warned that some financial institutions, particularly heavily indebted hedge funds and asset management firms, may face significant challenges in volatile market conditions, especially if they find themselves compelled to liquidate investments in an unstable financial environment.
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