IMF Warns of “New Era” as Global Growth Expected to Slow — Evening Brief – 04.22.25
The International Monetary Fund (IMF) released an updated World Economic Outlook on Tuesday, significantly cutting its global growth forecasts due to escalating trade tensions and U.S. tariffs at century-high levels. The IMF now projects global growth at 2.8% for 2025, down 0.5 percentage points from its January forecast of 3.3%, and 3.0% for 2026, a 0.3-point reduction. This reflects a sharp slowdown from 2024’s estimated 3.3% growth.
The IMF slashed its global trade growth forecast by 1.5 points to 1.7% for 2025, half of 2024’s rate, citing fragmentation in supply chains and reduced U.S.-China bilateral trade. U.S. growth is forecast at 1.8% for 2025, down 0.9 points from January’s 2.7% and a full point below 2024’s 2.8%. For 2026, it’s projected at 1.7%. Tariffs account for roughly 0.4 points of the 2025 downgrade, with policy uncertainty also weighing heavily. The risk of a U.S. recession has risen to 37% to 40% from 25%. China’s growth is now expected at 4.0% for 2025 and 2026, down 0.6 points from January’s 4.6%, due to reduced export demand from U.S. tariffs. Government stimulus may partially offset the impact.
Canada’s growth was cut to 1.4% for 2025 (from 2.0%) and 1.6% for 2026, impacted by U.S. tariffs. Mexico faces a contraction of -0.3% in 2025, a 1.7-point drop, recovering to 1.4% in 2026. In the Eurozone, growth slowed to 0.8% in 2025 and 1.2% in 2026, both down 0.2 points, though Spain’s forecast rose to 2.5%.
UK growth was forecast at 1.1% for 2025, down 0.5 points, with inflation up 0.7 points to 3.1%, driven by tariffs and domestic factors like energy price hikes. Japan’s growth was reduced by 0.5 points to 0.6% in 2025 due to trade tensions.
The IMF’s revised forecasts follow the administration’s announcement of sweeping tariffs, including a 10% universal duty on nearly all imports and levies up to 145% on Chinese goods. Although some “reciprocal” tariffs on countries like the EU, Japan, and South Korea were paused for 90 days, the U.S.-China trade war has intensified, with China retaliating and the EU preparing countermeasures. This has driven trade barriers to their highest in a century, creating “off-the-charts” uncertainty that curbs investment, tightens financial conditions, and fuels market volatility.
IMF chief economist Pierre-Olivier Gourinchas warned of a “new era” where the global trading system, stable for 80 years, is being reset. The combination of tariffs, retaliatory measures, and policy unpredictability is testing global economic resilience. Firms are suspending investments, and banks may reduce lending as they assess exposure to the new trade environment.
The IMF revised global inflation upward to 4.3% for 2025 and 3.6% for 2026, slower to decline than anticipated due to tariff-induced price increases. In the U.S., inflation is expected to hit 3.0% in 2025, up 1.0 point from January, posing challenges for the Federal Reserve. The UK faces the highest G7 inflation at 3.1%, while China’s inflation remains low, with deflationary risks due to weak demand.