The International Monetary Fund drastically reduced its global growth forecast on Tuesday, pointing to mounting trade tensions and policy uncertainty that threatens to derail economic momentum worldwide.
The Washington-based institution now expects global growth to reach just 2.8% in 2025, marking a sharp 0.5 percentage point reduction from its January projection. The downgrade comes as President Donald Trump’s tariff policies create ripple effects throughout the international economic system.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” said Pierre-Olivier Gourinchas, the IMF’s chief economist, in remarks accompanying the World Economic Outlook report. He added that recent U.S. tariff announcements had more than halved the Fund’s outlook for global trade growth this year.
The outlook for the United States appears particularly troubling, with growth projections slashed to 1.8% for 2025, down dramatically from the 2.7% forecast issued just three months ago. This 0.9 percentage point reduction reflects what Gourinchas described as “greater policy uncertainty, trade tensions, and softer demand momentum.”
More concerning still, the IMF now places the odds of a U.S. recession at 40%, up from 25% last October, though it has not yet made this its baseline scenario.
The April report, which normally takes months to prepare, underwent a hasty revision following President Trump’s tariff announcements. “The April 2 Rose Garden announcement forced us to jettison our projections — nearly finalized at that point — and compress a production cycle that usually takes more than two months into less than 10 days,” Gourinchas explained.
European economies also face significant headwinds. The United Kingdom’s growth forecast was lowered to 1.1% for 2025, down 0.5 percentage points from previous estimates, while the broader euro area is now expected to grow at just 0.8% before picking up modestly to 1.2% in 2026.
The U.K.’s Office for Budget Responsibility had already halved its own growth forecast from 2% to 1% for 2025, suggesting a growing consensus around deteriorating economic conditions.
Spain stands as a rare bright spot in Europe, with the IMF noting its “growth momentum contrasts with the sluggish dynamics elsewhere.” The Mediterranean nation is expected to expand its economy by 2.5% this year.
The IMF also raised concerns about inflationary pressures resulting from new tariffs. It revised its expectations for headline inflation across advanced economies to 2.5% for 2025, reflecting an increase of 0.4 percentage points from January’s projection. The U.S. inflation outlook specifically was revised higher to 3%, up a full percentage point from earlier estimates.
“For the United States, this reflects stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods and the supply shock from recent tariffs,” the IMF explained in its report.
The downgrade adds weight to warnings from major financial institutions, with both JPMorgan Chase and Goldman Sachs recently signaling increased recession risks for the American economy.
Gourinchas emphasized that tariffs function as “a negative supply shock for the economy imposing them,” suggesting that protectionist policies would ultimately harm their originators as well as their targets.
The Fund’s outlook paints a picture of a global economy at a crossroads, facing the most significant reset of international economic relations in generations. With risks firmly tilted to the downside, policymakers face complex challenges balancing growth concerns against inflationary pressures in an increasingly fractured global system.