IMF Slashes Global Growth Forecast to 2.8%, Cites U.S. Tariffs as ‘Major Shock’ to Economy

The International Monetary Fund (IMF) has issued a sobering update to its global economic outlook, projecting a sharp slowdown in growth due to escalating trade tensions and rising policy uncertainty. In its latest World Economic Outlook (WEO), released Tuesday during the ongoing Spring Meetings with the World Bank, the IMF downgraded its 2025 global growth forecast to 2.8 per cent, with a modest recovery to 3 per cent in 2026 — a significant dip from the previously projected 3.3 per cent for both years.

The downgrade marks a striking deviation from the January 2025 projections and underscores growing alarm over global economic stability. According to the IMF, a wave of new U.S. tariffs and retaliatory trade barriers by major trading partners — culminating in what it called “near-universal” U.S. tariffs as of April 2 — has triggered a level of trade disruption not seen in over a century.

“This on its own is a major negative shock to growth,” the IMF warned, adding that the unpredictable nature of the measures has only deepened uncertainty and complicated forecasting efforts.

In a notable shift from its usual methodology, the IMF presented what it termed a “reference forecast” — built on data available as of April 4 — instead of its traditional baseline. The fund stressed that this forecast was shaped by rapidly evolving trade policies and heightened geopolitical tensions, which have clouded the global economic landscape.

“Trade tensions have escalated swiftly, and the accompanying policy uncertainty is now at extremely high levels, which is expected to weigh heavily on economic activity,” the report stated.

The IMF’s regional breakdown paints a grim picture for both advanced and emerging economies. Growth in advanced economies is now forecast at 1.4 percent for 2025, with U.S. growth expected to slow to 1.8 per cent — down nearly a full percentage point from earlier estimates, due to softening demand and elevated policy risks. In the euro area, growth is expected to decelerate further to 0.8 per cent.

Emerging markets and developing economies aren’t faring much better. Growth is projected to drop to 3.7 per cent in 2025 and 3.9 per cent in 2026, with countries like China hit hardest by the trade fallout.

Global inflation, while easing, is expected to decline more slowly than initially anticipated. The IMF now forecasts headline inflation at 4.3 per cent in 2025 and 3.6 per cent in 2026, with notable upward adjustments for advanced economies and slight downward revisions for emerging markets.

Beyond growth and inflation figures, the IMF highlighted a host of downside risks, including the potential for an entrenched trade war, dwindling policy buffers, and weakened resilience to future shocks.

In a clear message to global policymakers, the IMF urged nations to work collaboratively to stabilise the trade environment, restructure unsustainable debt, and address shared structural challenges.

“Countries must act decisively to reduce uncertainty, rebuild policy buffers, and reinvigorate medium-term growth prospects,” the report concluded. “This is essential not only to restore global economic balance but also to ensure long-term stability and prosperity.”