The International Monetary Fund (IMF) on Tuesday, April 22, published updated forecasts for economic growth in the United States, China, and many other countries, demonstrating in this case a more pessimistic outlook compared to previous expectations.
Experts from the mentioned organization, based in Washington, noted that the revision of the mentioned projections is related to the impact of US tariffs, which are currently the highest in the last 100 years. They also separately underlined that further trade tensions will contribute to an even greater slowdown in economic growth.
The IMF noted that the global economic system, within which most countries have operated for the last 80 years, is currently being reset. Also, in the context of the relevant statement, it was highlighted that, against the background of the mentioned process, the world is approaching a new era. At the same time, it is not yet clear which configuration of the global order of things will become an objective reality for the world under the impact of the changes currently being observed. The IMF stated that the existing rules are being challenged, while the new ones are just emerging. In a certain sense, this statement can be interpreted as a kind of recognition by the organization that the current historical moment is approaching a condition that, from the point of view of a large-scale assessment, corresponds to the concept of the breakdown of epochs. Periods that correspond to the specified definition are always difficult to fully understand. The reality familiar to the world as the content of global space is becoming the past, but the new state of affairs as a fundamental condition is only being formed and is still rather a symbol, but gradually transforming into a substance in the material and applied plane. It is worth clarifying separately that in this case reality is implied in a socio-political, economic, to some extent cultural, and in a certain sense historically, but not in a literal physical sense. Also, an important characteristic of periods characterized as the breakdown of epochs is increased turbulence in both public and private life, primarily in a pragmatic context.
In a message posted on the IMF’s blog on Tuesday, it was mentioned that since the end of January, the United States has announced a flurry of tariffs, starting with Canada, Mexico, China, and the critical sectors. In April, these measures of Washington’s trade policy reached a culmination, becoming almost universal levies. The IMF noted that the US effective tariff rate has exceeded the level seen during the Great Depression. The organization also drew attention to the fact that the retaliatory measures by major trading partners significantly pushed up the global rate.
The IMF stated that the epistemic uncertainty and policy unpredictability that are emerging against the background of what is happening has become factors affecting the economic outlook. In the relevant context, it was noted that the abrupt tariff increases and attendant uncertainty would significantly slow down global economic growth. The IMF also noted that the current situation is characterized by complexity and fluidity.
The World Economic Outlook’s reference forecast published on Tuesday includes tariff announcements between February 1 and April 4 by the United States and countermeasures by other countries. The IMF predicts that global gross domestic product (GDP) will grow by 2.8% in the current year. It is worth noting that the January projection provided for an increase in the mentioned indicator by 3.3%. The IMF also predicts that global GDP will grow by 3% next year. The previous forecast provided for an increase in this indicator by 3.3%.
The IMF took into account the situation that emerged against the background of the announcement by the President of the United States, Donald Trump, of reciprocal tariffs against almost the entire world, and the circumstances after he decided on a 90-day pause in raising levies and another increase in duties against China. At the same time, it is worth clarifying that a reference forecast is based on developments through April 4. The organization noted that the 90-day pause, even if extended indefinitely, would not significantly change the global economic outlook. In the relevant context, it was highlighted that the overall effective tariff rate of the United States and China remains elevated, even if some countries initially faced with high tariffs will benefit, while policy-induced uncertainty has not declined.
The IMF said that despite the slowdown, the growth rate of the global economy remains well above the recession level.
The revised forecasts contained in the report, published on Tuesday, provide that the rate of decline in inflation will be slower compared with January expectations. The IMF predicts that in 2025 the corresponding figure will be 4.3% at the global level. Global inflation is also expected to fall to the 3.6% mark next year, with notable upward revisions for the United States and other advanced economies.
The IMF report noted that global trade has been quite resilient so far. It was underlined that the corresponding state of affairs was partly because businesses could re-route trade flows if there was a corresponding need. Now, as the IMF noted, this may become more difficult. The organization predicts that global trade will grow by 1.7% in 2025. The previous version of this projection provided a 3.2% increase in the mentioned indicator. Moreover, the forecast for 2025 is a significant downturn compared to expectations for 3.4% global trade growth in 2024. In this case, there is an example reflecting the fragmentation of the global economic space. With the highest probability, the corresponding process will become more intense against the background of the trade war. In the long term, this tendency may become a factor in the formation of a kind of economic alliances, the participants of which will actively interact with each other and have minimal or no ties with countries from other unions. It is also possible that fragmentation based on the economic principle will scale up and form what can be described as new deeper political blocs. In the context of historical development as a process of the movement of the world, at the current stage of the implementation of the corresponding progressive dynamic, there is an increase in protectionism and a weakening of globalism as an ideology for the formation of the international order of things. The continuation and scaling of this situation will mean an increased fragmentation of the global space of the existence of human civilization. International cooperation in the broad sense of this definition is likely to degrade, including in the context of the economic aspect. This is not an inevitable, but a very realistic scenario for the further dynamic of events and processes in the world.
Pierre-Olivier Gourinchas, the chief economist of the IMF, said during a conversation with media representatives that the swift escalation of trade tensions and extremely high levels of uncertainty are quite significant and hitting all the regions of the world. He also noted that a further escalation of trade tensions between the United States and other countries would provoke additional uncertainty and increase volatility in financial markets, which would tighten financial conditions. Moreover, Pierre-Olivier Gourinchas said that weaker economic growth prospects had already reduced demand for the dollar, but the adjustment in the currency markets and portfolio rebalancing seen to date had been orderly.
The IMF report noted that the global estimate masks substantial variation across countries. In this context, it was noted that tariffs are a factor of negative impact on the process of shipments in the jurisdiction affected by the relevant measures since resources are reallocated towards the production of less-competitive items, which results in a decrease in aggregate productivity and an increase in prices for goods. The IMF expects that in the medium term, the tariff factor will cause decreasing competition and innovation and will also provoke rent-seeking, which will further weigh on the outlook.
The report also noted that demand in the United States has already shown a decline. The IMF argues that this is a reflection of greater policy uncertainty. The organization predicts that the United States economy will grow by 1.8% in the current year. The January forecast called for an increase of 2.7% in this indicator. The IMF noted that tariffs account for a 0.4% decrease in the forecast for economic growth in the United States in 2025. The organization predicts that US GDP will increase by 1.7% next year. In 2024, the United States economy showed growth of 2.8%.
The organization also revised its forecast for inflation in the US in the current year. The IMF expects the corresponding figure to be about 3%. The previous version of the forecast provided that inflation in the United States for 2025 would be fixed at the 2% mark.
The IMF said that for trading partners, tariffs are predominantly a negative demand shock that drives foreign consumers away from their products, even if some countries can benefit from the trade diversion. Given this deflationary momentum, the organization lowered its forecast for China’s economic growth in the current year. The IMF expects the Asian country’s GDP to increase by 4% in 2025. The previous version of the forecast provided for the growth of the Chinese economy, which is currently the second-largest in the world, by 4.6%. Pierre-Olivier Gourinchas stated that the impact of tariffs on the Asian country’s economic system, which relies heavily on exports, was about 1.3% in 2025, but this loss in GDP growth was offset by stronger fiscal measures.
The IMF predicts that the world’s second-largest economy will also grow by 4% next year. It is worth mentioning that in 2024, the Asian country’s GDP increased by 5%.
The IMF predicts that economic growth in the eurozone, which is facing relatively lower tariffs, will be 0.8% in the current year. The previous version of the forecast provided that GDP in the mentioned region would increase by 1%. The IMF noted that in the eurozone, as in China, stronger fiscal stimulus will provide some support in 2025 and next year. The organization expects that in 2026, GDP in the mentioned region will increase by 1.2%. Last year, the eurozone economy grew by 0.9%.
The fastest rate of GDP rise is expected in India. The IMF predicts that the economy of this country will show a growth of 6.2% in the current year. In 2026, India’s GDP is expected to increase by 6.3%. Last year, the economy of the South Asian country showed growth of 6.5%. It is worth noting that the previous version of the forecast for the current year provided that the mentioned GDP growth rates would continue.
The International Monetary Fund predicts that the economy of the United Kingdom will show growth of 1.1% in the current year. The previous version of the forecast provided for a 1.6% increase in this country’s GDP. The IMF expects the UK economy to grow by 1.4% next year. In 2024, the United Kingdom’s GDP increased by 1.1%.
The IMF predicts that the German economic system will not show any growth this year. The organization expects that the country’s GDP for 2025 will be fixed at the 0% mark. The previous version of the forecast predicted that the German economy would grow by 0.3%. The IMF also expects that the country’s GDP will increase by 0.9% next year. In 2024, the mentioned index dropped by 0.2%.
Canada’s GDP, according to the IMF forecast, will show growth of 1.4% in the current year. The previous version of this projection stipulated that the economy of the mentioned country would rise by 2%. The IMF also predicts that Canada’s GDP will grow by 1.6% next year. Last year, the economy of this country increased by 1.5%.
The IMF’s forecast for Mexico’s GDP prospects in the current year is negative. The organization expects this indicator to fall by 0.3%. The previous version of the forecast predicted that Mexico’s GDP would grow by 1.4%. US tariffs are the main reason for the negative outlook. In 2026, according to the IMF forecast, Mexico’s economy will show growth of 1.4%. Last year, the country’s GDP increased by 1.5%.
The organization also stated that many emerging market economies may face a significant slowdown in growth. In the relevant context, it was also noted that the scale of the mentioned slowdown will depend on which tariffs these countries will face ultimately. The IMF lowered its economic growth forecast for this group of nations by 0.5%. GDP in the mentioned economies is now expected to grow by 3.7% in 2025.
The IMF report noted that dense global supply chains can magnify the impact of tariffs and uncertainty. In the relevant context, it was highlighted that most traded goods are intermediate inputs that cross borders multiple times before being turned into final products. The IMF also stated that disruptions can propagate up and down the global input-output network with potentially large multiplier effects, as was the case during the coronavirus pandemic. The organization predicts that companies faced with uncertain market access are likely to pause in the near term, reduce investment, and cut spending. The IMF also expects that financial institutions will reassess the borrower’s exposure. Moreover, it was noted that increased uncertainty and tightening financial conditions may dominate in the short term. This will put pressure on economic activity and has already been reflected in the sharp drop in oil prices.
The IMF said the impact of tariffs on exchange rates is complex. The United States, as the tariffing country, may face its currency appreciation as in previous episodes. At the same time, the IMF noted that increased policy uncertainty, deteriorating economic growth prospects, and an adjustment in global demand for dollar assets, which has been relatively low so far, may become factors of pressure on the US currency, which has already been observed after Donald Trump announced levies. The organization warns that in the medium term, the dollar may depreciate in real terms. It was noted that the corresponding scenario would become a reality if tariffs caused a decrease in productivity in the US tradable goods sector compared to trading partners.
The IMF says the risks to the global economy have increased. Worsening trade tensions may further depress GDP growth. Financial conditions may tighten further as markets react negatively to the diminished economic growth prospects and increased uncertainty. The IMF said that banks as a whole remain well capitalized, but still financial markets may face more severe tests.
The organization said that economic growth prospects could improve immediately if countries soften their current trade policy stance and forge new trade agreements. Addressing domestic imbalances can offset economic risks and raise global output within a few years while making a significant contribution to closing external imbalances. The IMF noted that for Europe, this means increased spending on infrastructure to accelerate productivity growth. It also means boosting domestic demand support in China and stepping up fiscal consolidation in the United States.
Policy recommendations from the IMF call for prudence and improved cooperation. In this context, it was noted that the initial task should be to restore the trade policy stability and forge mutually beneficial arrangements. The IMF stated that the global economy needs a clear and predictable trading system that eliminates long-standing gaps in international trade rules, including the pervasive use of non-tariff barriers or other trade-distorting measures. The organization noted that this would require improved cooperation.
Moreover, the IMF stated that monetary policy should remain agile. In this context, it was noted that some countries may face tougher trade-offs between inflation and output. In other states, inflation expectations may become less well-anchored, and a new inflationary shock may follow closely after the previous one. The IMF argues that countries facing rising price pressures will need to forcefully tighten monetary policy. In other states, the shock of negative demand will warrant lowering borrowing costs. The IMF notes that monetary policy credibility will be important in all cases, and central bank independence remains a cornerstone.
The IMF noted that the increasing external volatility associated with tariff adjustments and a possibly prolonged risk-off environment could generate difficulties for emerging markets. IMF’s Integrated Policy Framework emphasizes that it is important to let currencies adjust when driven by fundamental forces, as is happening now.
The organization stated that the fiscal authorities are currently facing starker trade-offs with high debt, low economic growth, and increasing financial costs. In this context, the IMF noted that most countries still have too little fiscal space and need to implement gradual and credible consolidation plans. It was also highlighted that some of the poorest countries also hit with reduced official aid, may experience debt distress.
Moreover, the IMF noted that the new spending needs further exacerbate fiscal fragilities. In this context, attention was drawn to the fact that calls for support will increase for those at risk of severe dislocation from the shocks. The IMF argues that such support should remain narrowly targeted and incorporate automatic sunset clauses. The organization noted that the experience of the last four years indicates that it is easier to open the tap of fiscal support than to close it.
The IMF also stated that some countries, especially in Europe, are facing new and permanent increases in defense-related spending. The organization argues that for countries with sufficient fiscal space, only a temporary portion of the additional spending by debt should be funded. In this case, it means temporary support to help adapt to the new environment or the initial bulge in spending to rebuild defense capabilities. For all other countries, according to the IMF, new spending needs should be offset by spending cuts elsewhere or new revenues.
The organization’s report also noted that one should not forget about the need for stronger economic growth. In this context, the IMF noted that each government should continue to engage in fiscal and structural reforms that help mobilize private resources and reduce their misallocation. The importance of investing in digital infrastructure and the training needed to benefit from new technologies such as artificial intelligence was also highlighted.
Apart from that, the IMF stated that decades of deepening trade ties fostered rapid but uneven economic growth. In this context, it was noted that in many advanced economies, there is an acute perception that globalization has unfairly displaced domestic manufacturing jobs. The IMF stated that there is some merit in the mentioned grievances even if the share of manufacturing employment in advanced economies has been in a secular decline in countries running trade surpluses, like Germany, or shortages, like the United States.
The report highlighted that the deeper force behind the mentioned decline is technological progress and automation, not globalization. In the relevant context, it was noted that in both countries the output share of manufacturing has remained stable. The IMF stated that the mentioned forces are ultimately beneficial, but at the same time can be very disruptive for individuals and communities. It was noted that it is a collective responsibility to ensure the right balance between the pace of progress or globalization and addressing the associated dislocations. The IMF stated that this requires that policymakers think well beyond the reductive lens of compensating transfers between winners and losers, be it of technological revolutions or globalization. It was noted that not enough had been done in the relevant direction. Against this background, many embraced a zero-sum worldview. The corresponding concept stipulates that the gains of some are achieved only at the expense of others.
The IMF stated that global integration is not an objective in and of itself. It was noted that this is a means to an end, an important insofar as it supports improved living standards for all.
According to IMF forecasts, China will have the largest share of global economic growth from 2025 to 2030. In this case, it means an indicator of 23%. India is second in the corresponding ranking. According to the IMF forecasts, the share of this South Asian country in global economic growth from 2025 to 2030 will be 15.2%. The United States has the third place. The IMF predicts that the US share of global economic growth for the mentioned period will be 11.3%. These indicators may change, including dramatically, if certain negative circumstances arise.
