WASHINGTON — The International Monetary Fund (IMF) reported on Tuesday that the U.S. and global economies are expected to experience significant deceleration due to President Donald Trump’s trade tariffs and the resulting uncertainties. The latest World Economic Outlook from the IMF forecasts the global economy to grow by just 2.8% this year, a reduction from its previous estimate of 3.3% in January.
Moving forward to 2026, global economic growth is predicted to be 3%, again lower than the prior forecast of 3.3%. The fund highlighted that the economic powerhouses, the United States and China, are set to face weakened growth. It projects the U.S. economy will expand by only 1.8% this year, a notable drop from an earlier prediction of 2.7%, and one percentage point below the U.S. GDP growth rate expected for 2024. Although the IMF does not foresee a recession in the U.S., it has raised the likelihood of one occurring this year from 25% to approximately 40%.
For China, the growth rate is projected to reach 4% this year and maintain the same next year, slightly below previous estimates. Pierre-Olivier Gourinchas, IMF chief economist, emphasized that we are entering a transformative period, noting that the global economic system which has prevailed for the last eighty years is undergoing a fundamental reset.
These forecasts demonstrate the extensive impact of tariffs and the consequent uncertainties, with every country bearing some effect, as U.S. import tax increases have raised average duties up to around 25%, the highest level in a century. Though the IMF’s analysis aligns with numerous private-sector economists’ predictions, concerns about a potential recession have heightened. JPMorgan economists have increased the likelihood of a U.S. recession to 60%, while the Federal Reserve projects a slowdown to 1.7% growth this year.
The IMF, a global lending institution comprising 191 nations, aims to foster economic development and financial stability while working to reduce poverty worldwide. Gourinchas disclosed that the unclear situation regarding import taxes prompted the IMF to undertake the unusual task of preparing diverse scenarios for future growth. This forecast was completed on April 4, following the Trump administration’s announcement of comprehensive tariffs on goods from nearly 60 countries, accompanied by almost universal 10% duties.
Although these duties were paused on April 9 for a 90-day period, the IMF’s forecasts remain largely unchanged due to the continued imposition of steep tariffs between the U.S. and China. The Trump administration has implemented import taxes on cars, steel, and aluminum, enforcing 25% duties on most goods from Canada and Mexico alongside a broad 10% tariff on nearly all imports. A substantial 145% levy applies to Chinese imports, excluding smartphones and computers, which have been immune to these duties. In response, China levied 125% tariffs on U.S. goods.
According to the IMF, uncertainty about impending actions from the Trump administration is likely to impose a significant burden on both the U.S. and global economies. The tariffs primarily affect components integral to final products, potentially disrupting supply chains, akin to issues witnessed during the pandemic, Gourinchas cautioned in a blog post.
Businesses encountering unpredictable market access might reduce short-term investment and cut spending, he suggested in the post. The U.S. tariffs are anticipated to negatively impact less-developed economies, with Mexico forecasted to contract by 0.3% this year, down from an earlier projection of 1.4% growth. South Africa’s growth is forecasted at just 1% this year, compared to a 1.5% estimate in January.
Though the U.S. is likely to confront a supply shock, China is expected to deal with diminished demand due to a decrease in the U.S. purchasing its exports. Inflation rates in the United States are set to rise to about 3% by year-end, whereas inflation in China is expected to remain stable.
Gourinchas acknowledged in his blog post that concerns about globalization displacing domestic manufacturing jobs are legitimate, but he attributes this trend primarily to technological innovation and automation rather than globalization. Both Germany, which boasts a trade surplus, and the United States, grappling with a trade deficit, have experienced relatively consistent factory output despite declining manufacturing employment, owing to automation.
The IMF predicts the tariffs will pose a substantial challenge to China’s economic activities, although additional governmental spending is expected to mitigate some of these impacts. While the European Union anticipates slower growth, the tariffs’ consequences are less severe due, in part, to relatively lower U.S. duties than those imposed on China. Further government expenditure in Germany is expected to counterbalance some of the tariffs’ effects. The euro area is projected to grow by 0.8% this year and 1.2% the following year, a slight decline of 0.2% in both years from January’s projections by the IMF.
Elsewhere, Japan’s growth forecast has been decreased to 0.6% for both this year and the next, representing reductions of 0.5% and 0.2% from the previous January analysis. The IMF released a separate report on Tuesday highlighting that global financial stability risks have surged considerably amid the worsening economic outlook. Despite recent market upheavals spurred by Trump’s tariffs, some stock and bond prices remain elevated, making them vulnerable to future declines. The IMF also warned that certain financial institutions might encounter pressures in turbulent markets, particularly targeting highly leveraged hedge funds and asset management firms at risk of needing to liquidate investments in an already fragile market.