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President Donald Trump’s unpredictable tariff policy and countermeasures by America’s trading partners will likely deal a heavy blow to economies worldwide, with US prosperity hit particularly hard, the International Monetary Fund warned Tuesday.
Global economic growth will slow to 2.8% this year, from 3.3% last year and significantly below the historical average, the IMF forecast in its World Economic Outlook report.
The slowdown expected in the United States is even steeper, with its economy likely to grow only 1.8% in 2025, compared with a 2.8% expansion in 2024.
Both predictions are more pessimistic than the fund’s January projections, which came before Trump’s flurry of tariff announcements took America’s average import tax to its highest level in a century.
“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity,” the Washington, DC-based institution said. And risks to the global economy are “firmly tilted to the downside,” it added.
Trump’s new tariffs account for almost half of the sharp downgrade in the IMF’s US growth forecast for this year, Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post, noting that uncertainty over policy dented demand in the US even before the recent tariff announcements.
North America, just like all regions, can’t expect any upside from the tariffs further down the line. “The long-term impact of the tariffs, if they are maintained, (will be) negative for all regions, just like the short-term impacts,” Gourinchas told reporters Tuesday.
Gourinchas also said that “central bank independence remains a cornerstone.” The comment comes just a day after Trump attacked US Federal Reserve Chair Jerome Powell as a “major loser,” part of his continuing campaign to pressure the central bank chief to cut interest rates.
Lowering borrowing costs at this point would risk pushing up US inflation, which is still running above the Fed’s 2% target and is likely to rise further because of Trump’s tariffs, according to many forecasters.
The IMF has grown gloomier on US prices and now sees inflation hitting 3% this year, compared with its January forecast of 2%.
The latest World Economic Outlook was put together under “exceptional” circumstances, the IMF said. Trump’s unveiling of sweeping tariffs on April 2 “forced us to jettison our projections — nearly finalized at that point,” it wrote.
Similarly, Gourinchas told reporters: “We’re entering a new era as the global economic system that has operated for the last 80 years is being reset.”
Underscoring the importance of trade to the economic outlook, the IMF said in its report that a ratcheting up of trade tensions, along with even more questions about where trade policies are headed, could further reduce growth, whereas “de-escalation from current tariff rates and new agreements providing clarity and stability in trade policies” could do the opposite.
In an interview, Christine Lagarde, president of the European Central Bank, voiced a similar view of trade. “Free trade has always enhanced the overall growth, has been a serious contributor to the development of all economies,” she told CNBC Tuesday.
She said higher tariffs will have a negative impact on Europe’s economic growth, although she doesn’t expect a recession in the 20 countries that use the euro.
This story has been updated with additional information. Anna Cooban contributed reporting.