The International Monetary Fund (IMF) has significantly lowered its forecast for global economic growth for the coming years. The organization warns that the escalating global trade war triggered by U.S. tariff measures may further drag down the prospects for global economic growth.
In its latest World Economic Outlook released on Tuesday (April 22nd), the IMF revised down its forecast for global output growth this year to 2.8%, lower than the 3.3% predicted in January. This marks the slowest global GDP growth rate since the outbreak of the COVID-19 pandemic in 2020 and the second-worst growth rate since 2009.
The IMF stated that for the United States, the trade war will lead to supply shocks, driving up prices and dragging down productivity. For trading partners, tariff increases will translate into demand shocks, hitting output and prices.
According to the IMF, the effective tariff rate in the United States has surged to its highest level in a century.
“We are entering a new era,” said Pierre-Olivier Gourinchas, Chief Economist of the IMF, at a press conference. “The global economic system that has been operating for the past 80 years is being reset.”
This new outlook includes a “reference forecast” for global economic growth and inflation based on data available as of April 4th, including reciprocal tariffs but excluding subsequent developments such as the temporary suspension of reciprocal tariffs by countries other than China for 90 days and the temporary exemption of tariffs on electronic products like smartphones and computers. The latest outlook updates the IMF’s previous forecast released in January.
The United States and China are among the countries with the largest downward revisions by the IMF. The U.S. economic growth rates for this year and 2026 are projected to be 1.8% and 1.7%, respectively, lowered by 0.9 and 0.4 percentage points. China’s economic growth forecasts for the next two years are both downgraded to 4%, by 0.6 and 0.5 percentage points, respectively.
The IMF also raised its expectations for developed economies (including the U.S., U.K., and Canada) for total inflation rate in 2025 to 2.5%, up by 0.4 percentage points from the January forecast. The IMF increased its forecast for U.S. inflation in 2025 by about 1 percentage point to 3%.
In its report for April, the IMF stated, “For the United States, this reflects ongoing volatility in service prices, the recent rebound in core goods (excluding food and energy) prices, and the supply shocks from recent tariffs.”
The rise in inflation rates in major economies was partially offset by the downward revision in inflation rates for some emerging markets and developing countries.
The IMF report believes that these tariffs are putting pressure on central banks in various countries to lower their inflation efforts, based on whether people perceive these tariffs as temporary or permanent.
The organization also warned that due to the uncertainty of trade policy, many scenarios are possible. The IMF stated that if trade tensions ease and some countries address longstanding complaints about non-tariff barriers and trade-distorting measures, the prospects for world economic growth would immediately improve.
(Reference: Bloomberg)