IMF report says tariffs will lower 2025 global economic growth by 0.5%

The International Monetary Fund (IMF) has cut its global growth forecast by half a percentage point in its quarterly report released on Tuesday.

The IMF's April 2025 World Economic Outlook (WEO) Update has reduced its 2025 economic growth forecast from 3.3 percent to 2.8 percent. A further projected fall in 2026 from 3.3 percent to 3 percent corresponds to a cumulative downgrade of 0.8 percentage points.

By contrast, historic global growth from 2000-2019 - before the outbreak of the COVID pandemic - was 3.7 percent annually.

The report blames "a series of new tariff measures by the United States and countermeasures by its trading partners….bringing effective tariff rates to levels not seen in a century."

Its authors conclude that "this on its own is a major negative shock to growth."

In January's WEO report, growth in the U.S. this year was expected to be 2.7 percent but is now predicted to be 1.8 percent. 

This is "on account of greater policy uncertainty, trade tensions, and softer demand momentum."

Projected growth in the euro area has been reduced by 0.2 percent to 0.8 percent. In emerging market and developing economies, growth is expected to slow down to 3.7 percent in 2025 and 3.9 percent in 2026, "with significant downgrades for countries affected most by recent trade measures."

The report said growth last year was "stable yet underwhelming…..following an unprecedented series of shocks in the preceding years. However, the landscape has changed as governments around the world reorder policy priorities."

In addition, it says that global headline inflation will decline slower than had been expected in January, reaching 4.3 percent in 2025 and 3.6 percent in 2026.

The authors are particularly vexed by the possibility of further instability. 

They write: "Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks. 

"Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger additional repricing of assets beyond what took place after the announcement of sweeping U.S. tariffs on April 2 and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress."

The authors fear that "broader financial instability may ensue, including damage to the international monetary system. Demographic shifts and a shrinking foreign labor force may curb potential growth and threaten fiscal sustainability."

They conclude: "The path forward demands clarity and coordination. Countries should work constructively to promote a stable and predictable trade environment, facilitate debt restructuring, and address shared challenges. At the same time, they should address domestic policy and structural imbalances, thereby ensuring their internal economic stability."