The International Monetary Fund (IMF) has sharply downgraded its global economic outlook for 2025, citing intensifying trade tensions, policy uncertainty, and the lingering effects of recent tariff hikes as major headwinds for growth and inflation.
In its latest World Economic Outlook (WEO) report released Tuesday, the IMF projects global growth will slow to 2.8% this year, down from its January forecast and marking a cumulative downgrade of about 0.8 percentage points. The Fund expects growth to recover modestly to 3% in 2026, but warns that risks remain “enormous” and volatility is likely to persist.
The United States, the world’s largest economy, saw its 2025 growth forecast slashed by nearly a full percentage point to 1.8%. The IMF attributes about half of this downgrade to the impact of new tariffs, which it describes as a “supply shock” that will permanently reduce productivity and output while temporarily increasing price pressures. The rest of the downward revision reflects weakening consumer confidence and slowing consumption, as the U.S. economy cools from a period of rapid growth.
Despite the slowdown, the IMF does not currently predict a U.S. recession, but it has raised the probability of one to 40%, up from 25% last October. Headline inflation in the U.S. is now expected to reach 3% in 2025, a full percentage point higher than the previous estimate.
Other advanced economies, including the UK and Canada, are also expected to experience higher inflation and slower growth as a result of ongoing trade disputes and tighter financial conditions.
The IMF report highlights that global trade growth will be severely hampered by the recent escalation in tariffs, with trade expansion projected to drop from 3.8% last year to just 1.7% in 2025. The Fund warns that these trade frictions are already causing a pause in investment and economic activity worldwide, particularly affecting countries deeply integrated into global supply chains.
Emerging markets and developing economies are not immune to the downturn. The IMF has downgraded growth forecasts for most of these countries, citing reduced demand for exports, tighter financial conditions, and heightened uncertainty. Low-income countries, especially those in sub-Saharan Africa, face additional challenges due to shrinking capital flows and limited fiscal space, with their collective growth forecast cut by 0.4 percentage points to 4.2% in 2025.
“The global economy needs a clear, stable and predictable trading environment, one that addresses some of the longstanding gaps in international trading rules. Monetary policy will need to remain agile and respond by tightening where inflation pressures reemerge, while easing where weak demand dominates. Monetary policy credibility will be key, especially where inflation expectations meet the anchor and central bank independence remains a cornerstone,” said IMF Chief Economist Pierre-Olivier Gourinchas, head of the Fund’s Research Department.
