IMF Warns Global Economy Slowing as Trade Tensions Rise
The global economy is entering a new era marked by heightened trade tensions and policy unpredictability, warns the International Monetary Fund (IMF) in its latest World Economic Outlook report, released this week.
According to Pierre-Olivier Gourinchas, IMF Chief Economist, the established global trade framework of the past eight decades is being dramatically reshaped. Since late January, the United States has imposed sweeping new tariffs, culminating in near-universal levies announced on April 2, pushing the U.S. effective tariff rate beyond levels last seen during the Great Depression.
These actions—and retaliatory measures from key trading partners like China, Canada, Mexico, and the European Union—have driven up global tariff rates and deepened what the IMF describes as “epistemic uncertainty.” The IMF’s reference scenario, incorporating tariffs introduced through early April, projects global growth to slow to 2.8% in 2025 and 3.0% in 2026—a sharp downgrade of 0.8 percentage points from January forecasts.
The United States, which has seen softening demand even before the tariff hikes, now faces a growth forecast of just 1.8% this year, down from 2.7%. Inflation in the U.S. is also expected to climb to 3%, up from a previous estimate of 2%.
China, on the receiving end of particularly steep U.S. tariffs, is projected to grow at 4%, down 0.6 percentage points, with inflation expected to fall due to reduced demand. Meanwhile, the euro area, less affected by direct tariffs, is forecasted to grow by only 0.8%.
Emerging markets are also feeling the heat. The IMF expects their growth to drop to 3.7%, with concerns that prolonged tariff uncertainty could strain already fragile financial systems. Global trade, which had shown resilience until recently, is now expected to grow by just 1.7% in 2025—a significant drop from earlier projections.
The IMF also warned of long-term risks: reduced global productivity, dampened innovation, and weakened investment. With businesses and financial markets facing growing uncertainty, oil prices have sharply declined, and firms are delaying spending.
Despite this grim outlook, the IMF emphasizes that the current slowdown is not a recession. It also outlines a path forward: restoring trade policy stability, fostering new international trade agreements, and maintaining monetary and fiscal discipline.
The report calls on governments to focus on structural reforms and digital infrastructure investments, while also addressing the discontent that has fueled protectionist sentiment. “We should not lose sight of the need for stronger growth,” Gourinchas said. “It is a collective responsibility to ensure progress is balanced and inclusive.”
