By Christopher Lugerber, Economics writer for the Associated Press
WASHINGTON (AP) — The US and the global economy are likely to be significantly slower in the wake of President Donald Trump’s tariffs and the uncertainty they have created, the International Monetary Fund said Tuesday.
The IMF said the global economy will grow by 2.8% this year, from a January forecast of 3.3% in January, according to its latest global economic outlook. Additionally, the fund predicts global growth will be at 3% in 2026, below the previous 3.3% estimate.
And it believes the fund is weakening two of the world’s largest economies: China and the United States. US economic growth has dropped significantly from forecasts of 2.7% this year and full points below the expansion in 2024, reaching just 1.8% this year. The IMF doesn’t expect a US recession, but it has increased its odds this year from 25% to about 40%.
China is currently forecast to expand this year and the future by 4%, down about half the points from previous forecasts.
“We are entering a new era,” said Pierre Olivier Gou Rinchas, chief economist at the IMF. “This global economic system that has been operating for the past 80 years has been reset.”
The forecast highlights the widespread impact of both tariffs and the uncertainty they created. The IMF said that all countries around the world are affected. He said that hiking US import taxes has now raised the average US duties to around 25%, the highest in a century.
The forecast is largely in line with the expectations of many private sector economists, but some are increasingly afraid of the recession. JP Morgan economists say the chances of a US recession are currently at 60%. The Federal Reserve also predicts growth will fall to 1.7% this year.
The IMF is a 191-nation lending organization that works to promote economic growth, economic stability and reduce global poverty.
Gourinchas said that increasing uncertainty regarding import taxes has led the IMF to take the extraordinary steps of preparing several different scenarios for future growth. The forecast was finalised on April 4 after the Trump administration announced tariffs and a near-universal 10% mission in nearly 60 countries.
These duties were suspended for 90 days on April 9th. Gourinchas said the suspension did not significantly change the IMF forecast as the US and China have since imposed such sudden tariffs.
The Trump administration slapped the duties of automobiles, iron and aluminum, importing 25% import taxes on most goods from Canada and Mexico. The White House also exempts smartphones and computers, but imposes a 10% tariff on almost all imports and a 145% obligation on goods from China. China is retaliating with 125% of its US products.
The uncertainty surrounding the Trump administration’s next move is likely to focus on the US and the global economy, according to the IMF. Most traded goods are parts supplied to finished products, and tariffs could disrupt the supply chain, just like those that happened during the pandemic, Gourinchas warned in a blog post.
“Companies facing uncertain market access are likely to suspend, cut investments and cut spending in the near future,” he wrote.
Additionally, US tariffs are expected to collide with developing countries, with Mexico’s economy expected to fall 0.3% this year, down from its previous 1.4% growth rate. South Africa is projected to grow to just 1% this year, from a 1.5% forecast in January.
The US economy will likely suffer a supply shock, according to Gourinchas, but China is expected to experience a decline in demand as export purchases decrease.
Inflation is likely to worsen in the US, rising to around 3% by the end of this year, but little has changed in China, which IMF forecast.
In his blog post, Gourinchas acknowledged that there was a “acute perception that globalization has unfairly driven away many domestic manufacturing jobs,” adding that “these complaints have some benefit.”
However, he added, “The deeper force behind this decline is not globalization, but technological advancement and automation.” Gourinchas said that both Germany, which has a surplus in commodity trade, and the US, which has a deficit, have confirmed that production at factories remains at a relatively high level in recent decades, even if automation has caused a decline in manufacturing employment.
The IMF expects tariffs to take a big chunk of the Chinese economy, but it predicts that additional spending by the Chinese government will offset a large portion of the hit.
The European Union is expected to grow more slowly, but the blow from tariffs is not that big. This is because they face lower US obligations than China. Furthermore, some of the blow from tariffs will be offset by increased government spending by Germany.
The economies of 27 euro-using economies are projected to expand by 0.8% this year and 1.2% next year, down just 0.2% in both years, from the IMF’s January forecast.
Japan’s growth forecasts are marked at 0.6% this year, 0.5% and 0.2% lower than January, respectively.
In another report on Tuesday, the IMF warned that “the risk of global fiscal stability has increased significantly.” “The economic outlook has deteriorated,” he said. The fund said some stocks and bond prices are high despite the recent market defeat caused by Trump’s tariffs.
The IMF also warned that “some financial institutions may be tense in unstable markets.” It specifically points to the large debts of hedge funds and asset management companies and the risk that they will be forced to raise cash by selling their investments to already flexible markets.
AP Economics Writer Paul Wiseman contributed to this report.
Original issue: April 22, 2025 9:32am EDT
