IMF Slashes Growth Forecasts as U.S. Tariffs Spark Global Slowdown Warnings
The International Monetary Fund lowered its global growth forecasts on Tuesday, citing economic uncertainty tied to new U.S. trade policies. The IMF now expects global GDP to rise 2.8% in 2025, down from its earlier 3.3% projection, marking the slowest pace since the early days of the COVID-19 pandemic. The 2026 outlook was also trimmed, now sitting at 3%.
In a blog post, the IMF warned that policy unpredictability, stemming largely from the Trump administration’s sharp tariff increases, is weighing on investment and demand across regions. If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth, the fund said.
For the U.S., the GDP forecast was lowered to 1.8% for this year, down nearly a full percentage point from pre-tariff estimates, with tariffs accounting for roughly half of that reduction. The 2026 outlook was reduced by 0.4 points to 1.7%. Inflation expectations were also revised upward to 3%, a full percentage point above earlier forecasts.
The IMF also raised the likelihood of a U.S. recession in 2025 to 40%, up from 27% in its October outlook. It warned that the economy faces stagflation risks as supply chains are disrupted, productivity gains stall, and consumer prices climb.
Global trade tensions are expected to push demand down for key U.S. partners, creating a deflationary drag even as some countries may benefit from trade diversions. China, in particular, saw both its growth and inflation projections lowered in the latest update.
Should trade frictions ease, the IMF added, growth prospects could bounce back quickly.
The outlook arrives as market sentiment reflects the same concerns. Over the past week, the SPDR S&P 500 ETF (SPY) dropped 2.58%, slightly outpacing the S&P 500’s 2.54% slide. Over the past month, SPY fell 6.87% compared with the index’s 7.04% decline. Its six-month and year-to-date losses, at 10.01% and 10.38% respectively, are nearly identical to the S&P’s 10.00% and 10.42% drops. Both the ETF and the broader index show a one-year gain of 6.07%.
This article first appeared on GuruFocus.
