IMF Cuts Growth Forecasts

By Andrea Shalal

WASHINGTON (Reuters) – The International Monetary Fund (IMF) on Tuesday reduced its growth forecasts for the United States, China, and many other countries, citing high U.S. tariffs and rising trade tensions which threaten to further slow growth.

The IMF’s update to its World Economic Outlook came just days after U.S. President Donald Trump announced extensive tariffs on nearly all trading partners. The IMF cut its global growth forecast by 0.5 percentage points to 2.8% for 2025, and by 0.3 percentage points to 3% for 2026, down from earlier predictions of 3.3% growth.

The report forecasts inflation to decline more slowly than previously expected, with projections of 4.3% in 2025 and 3.6% in 2026—higher than past estimates for the U.S. and advanced economies.

IMF chief economist Pierre-Olivier Gourinchas stated, “We are entering a new era as the global economic system that has operated for the last 80 years is being reset.” He highlighted how escalating trade tensions and high policy uncertainty would significantly impact global economic activity.

Lower growth was evident in the U.S., euro area, and China, with potential further repercussions if trade tensions escalate, which could lead to additional volatility and tighter financial conditions. U.S. growth projections for 2025 were downgraded to 1.8%, and inflation was expected to increase to 3% as tariffs take hold.

The forecasts for Canada and Mexico were also revised downward, with Mexico’s economy expected to suffer a decline to -0.3% in 2025 due to tariffs. Europe also faced a slowdown, with the euro area projected to grow by only 0.8% in 2025.

Trade growth estimates were slashed significantly, reflecting increasing fragmentation in the global economy. U.S. and China tariffs are expected to lower bilateral trade, resulting in costlier and less efficient trade dynamics.

In summary, the IMF’s medium-term outlook remains bleak, with a five-year growth forecast of only 3.2%—below the historical average—signifying a need for major structural reforms to regain economic strength.

Key Points:

• IMF reduces U.S. growth to 1.8% in 2025, citing tariffs and trade tensions.
• Global growth forecast lowered to 2.8% for 2025, inflation rising due to tariffs.
• Medium-term growth outlook remains below historical averages; significant reforms needed.