IMF lowers global growth forecast by 0.5% in U.S. tariffs: “New Era” – Country
The IMF said Tuesday that U.S. and global economies could slow significantly after President Donald Trump’s tariffs and the uncertainty they created.
The IMF said the global economy will grow only 2.8% this year, down 3.3% from January's forecast, according to its latest world economic outlook. The fund predicts that global growth rate will reach 3% in 2026, lower than its previous 3.3% estimate.
The fund believes that China and the United States, the world's largest economies, have weakened: U.S. economic growth will be only 1.8% this year, higher than the previous forecast of 2.7% than its 2024 expansion. The IMF will not expect a U.S. recession, although the chances this year have increased from 25% to about 40%.
Now, China is expected to expand by four percent this year, with the next grade dropping about half from previous forecasts.
“We are entering a new era,” said Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund. “The global economic system that operates over the past eighty years is reset.”
The forecast highlights the wide impact of tariffs and the uncertainty they create. The IMF says hiking of U.S. import taxes have now impacted every country in the world, which have raised the average U.S. responsibility to about 25%, the highest in a century.
These forecasts are largely consistent with expectations from many private sector economists, although some do worry about the growing possibility of a recession. Economists at JPMorgan Chase said the chances of a recession in the United States are now 60%. The Fed also predicts growth will weaken to 1.7% this year.
The International Monetary Fund is a 191 lending organization dedicated to promoting economic growth and financial stability and reducing global poverty.
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Gurlinchas said the increased uncertainty over import tax has led to unusual steps in preparing several different situations for future growth. Its forecast is completed on April 4 after the Trump administration announced tariffs on nearly 60 countries and nearly 10% liability.
These responsibilities were suspended for 90 days on April 9. Gulinchas said the suspension did not substantially change the IMF's forecasts, because the United States and China have imposed such huge tariffs on each other since then.
The Trump administration has tariffs on automobiles, steel and aluminum, as well as import duties on most goods from Canada and Mexico. The White House also imposed 10% tariffs on almost all imports, and although smartphones and computers have been exempted, Chinese goods account for 145%. China has retaliated against 125% tariffs on U.S. goods.
The IMF said uncertainty surrounding the next move by the Trump administration could also put a lot of pressure on the U.S. and global economies. Gourinchas warned in a blog post that most traded goods are parts that send finished products into finished products, and tariffs can disrupt supply chains, similar to chains that occur during the pandemic.
“Companies facing uncertain market visits may stop in the short term, reduce investment and cut spending,” he wrote.
The U.S. tariffs are also expected to reach developed countries, and Mexico's economy is currently expected to shrink by 0.3% this year, down from previous forecasts of a 1.4% increase. South Africa is expected to grow 1% this year, down from the 1.5% forecast in January.
While the U.S. economy may suffer from supply shock, China is expected to reduce demand as U.S. purchases of exports decline, Gulinkas said.
In the United States, inflation is likely to worsen by the end of this year, rising to about 3% by the end of this year, and China will hardly change in the IMF forecast.
Gourinchas acknowledged in his blog post that “globalization has unfairly displaced many domestic manufacturing jobs”, adding: “These unjust people have some advantages.”
But he added, “The deeper force behind this decline is technological advancement and automation, not globalization.” Gourinchas noted that both have surplus in Germany, which has a commodity trade surplus, and the deficit in the United States has seen factory output remain relatively low in recent decades, even as automation leads to a decline in manufacturing employment.
The IMF expects tariffs to account for a large portion of China's economy, but also predicts that additional spending from the Chinese government will offset most of the blow.
The EU is expected to grow more slowly, but the tariffs are not hit hard, partly because it faces less than China's U.S. responsibilities. In addition, Germany's government spending is stronger and some tariffs will offset the blow.
Economies in the 27 countries using the euro are forecast to expand by 0.8% this year, and 1.2% stake next year will be 0.2% shorter than the IMF's January forecast.
Japan's growth forecasts fell to 0.6% this year, down from January's forecasts, respectively.
In another report on Tuesday, the International Monetary Fund warned that “the risks of global financial stability have increased significantly,” and the deteriorating economic outlook. The fund notes that while Trump’s tariffs triggered recent market avenues, some stocks and bonds are still priced high—meaning they are vulnerable to further declines.
The IMF also warned: “Some financial institutions could be under pressure in turbulent markets, especially to hedge funds and asset managers with heavy debt, and to increase the risk of cash by selling investments to already vulnerable markets.
–AP economics writer Paul Wiseman contributed to the report.
