IMF Cuts Global Growth Outlook Amid Trump Tariffs, Has Warning For India Too

The global economic growth is set to slow down in the coming months, largely due to the trade war sparked by US President Donald Trump's steep tariffs on virtually all trading partners, the International Monetary Fund (IMF) said on Wednesday. In its latest World Economic Outlook, the IMF warned that the US is confronting an increased risk of recession as it downgraded its outlook for all G7 nations, along with other major economies including China, India, Brazil and South Africa.

The fund cautioned that if countries fail to "urgently resolve" their trade tensions, it could further damage their growth prospects.  "If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth," it said. 

This came as global finance chiefs swarmed Washington seeking deals with Trump's team to lower the levies. According to White House press secretary Karoline Leavitt, 18 different countries have offered proposals so far, and Trump's trade negotiating team is set to meet with 34 countries this week to discuss tariffs. The US President himself expressed optimism that a trade deal with China could "substantially" cut tariffs, lifting markets.

What The IMF Said

The IMF's projections, which incorporate some but not all tariff measures introduced this year, see the global economy growing by 2.8 per cent this year, 0.5 percentage points lower than the previous World Economic Outlook (WEO) forecast in January. Global growth is then forecast to hit 3.0 per cent next year, down 0.3 percentage points from January.

"We are entering a new era as the global economic system that has operated for the last 80 years is being reset...If sustained, increasing trade tensions and uncertainty will slow global growth," IMF chief economist Pierre-Olivier Gourinchas told reporters in Washington on Tuesday, noting that the recent US tariff announcements had more than halved the Fund's outlook for global trade growth this year.

It expects tariffs will cause a broader increase in global prices, slightly raising its outlook for world consumer prices to 4.3 per cent for 2025, and to 3.6 per cent in 2026. 

Given the stop-start nature of Trump's tariff rollout, the IMF introduced a cutoff date of April 4, meaning they do not include the administration's latest salvos, which have hiked the level of new levies against China to 145 per cent. If these policies were to be taken into account and sustained, this could significantly slow global growth, the IMF said. 

In a separate report also published Tuesday, the Fund warned that Trump's stop-start tariff rollout had also caused an increase in risks to financial stability. "Global financial stability risks have increased significantly, driven by tighter global financial conditions and heightened economic uncertainty," the IMF said in its latest Global Financial Stability Report. 

Impact On Top US Trading Partners

Top US trading partners-- including Mexico, Canada, and China-- are all predicted to be negatively impacted by the Trump administration's tariffs. 

The IMF expects China, the world's second-largest economy, to see growth slump to 4.0 per cent this year, down from 5.0 per cent in 2024, with increased government spending failing to counteract the effect of the new levies.

The Mexican economy is now projected to contract by 0.3 per cent this year, a 1.7 percentage-point reduction from January, while Canada's growth outlook has also been sharply reduced. 

Japan, the world's third-largest economy, is expected to grow by just 0.6 per cent this year and next, a sharp cut from January.

The IMF expects the tariffs to act as a drag on growth in most European countries as well, as the growth outlook for the euro area is cut to 0.8 per cent in 2025, and 1.2 per cent next year.

The Fund also sharply downgraded the outlook for the Middle East but still expects economic activity to pick up from 2024, as disruptions to oil production and shipping ease, and the impact of ongoing conflicts lessens."

In sub-Saharan Africa, growth is projected to decline slightly to 3.8 per cent this year, before recovering next year.

"For India, the growth outlook is relatively more stable at 6.2 per cent in 2025, supported by private consumption, particularly in rural areas, but this rate is 0.3 percentage point lower than that in the January 2025 WEO Update on account of higher levels of trade tensions and global uncertainty," IMF said in its report.