The outlooks for the US and global economies have significantly worsened in the wake of US President Donald Trump’s tariffs and the uncertainty they have created, the International Monetary Fund (IMF) said yesterday.
The IMF said that the global economy would grow just 2.8 percent this year, down from its forecast in January of 3.3 percent, according to its latest World Economic Outlook. Next year, global growth will be 3 percent, the fund predicts, also below its previous 3.3 percent estimate.
US economic growth will come in at just 1.8 percent this year, down sharply from its previous forecast of 2.7 percent and a full percentage point below its expansion last year. The IMF doesn’t expect a US recession, though it has raised its odds of one this year from 25 percent to 37 percent.
Photo: Kent Nishimura, Bloomberg
The forecasts are largely in line with many private-sector economists’ expectations, though some do fear a recession is increasingly likely. Economists at JPMorgan Chase & Co say the chances of a US recession are now 60 percent. The US Federal Reserve has also forecast that growth will weaken this year, to 1.7 percent.
“We are entering a new era,” IMF chief economist Pierre-Olivier Gourinchas said. “This global economic system that has operated for the last eighty years is being reset.”
Gourinchas said that the heightened uncertainty around the import taxes led the IMF to take the unusual step of preparing several different scenarios for future growth. Its forecasts were finalized on April 4, after the Trump administration announced sweeping tariffs on nearly 60 countries along with nearly-universal 10 percent duties.
Those duties were paused on April 9 for 90 days. Gourinchas said the pause didn’t substantially change the IMF’s forecasts because the US and China have imposed such steep tariffs on each other since then.
The uncertainty surrounding the Trump administration’s next moves will also likely weigh heavily on the US and global economies, the IMF said. Companies may pull back on investment and expansion as they wait to see how the trade policies play out, which can slow growth.
China is also forecast to grow more slowly because of US tariffs. The IMF now expects it will expand 4 percent this year and next, down roughly half a point from its previous forecasts.
While the US economy will likely suffer a “supply shock,” similar to what hampered during the COVID-19 pandemic and which pushed up inflation in 2021 and 2022, Gourinchas said, China is expected to experience reduced demand as US purchases of its exports fall.
Inflation will likely worsen in the United States, rising to about 3 percent by the end of this year, while it will be little changed in China, the IMF forecast.
The European Union is forecast to grow more slowly, but the hit from tariffs is not as large, in part because it is facing lower US duties than China. In addition, some of the hit from tariffs will be offset by stronger government spending by Germany.
The economies of the 27 countries that use the euro are forecast to expand 0.8 percent this year and 1.2 percent next year, down just 0.2 percentage points in both years from the IMF’s January forecast.
Japan’s growth forecast has been marked down to 0.6 percent this year and next, 0.5 percentage points and 0.2 percentage points lower than in January, respectively.
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