The IMF released an update to its World Economic Outlook compiled in just 10 days after U.S. President Donald Trump announced universal tariffs on nearly all trading partners and higher rates - currently suspended - on many countries.
It said inflation was expected to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3% in 2025 and 3.6% in 2026, with “notable” upward revisions for the U.S. and other advanced economies.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,“ IMF chief economist Pierre-Olivier Gourinchas told reporters.
“It’s quite significant and it’s hitting all the regions of the world. We’re seeing lower growth in the U.S., lower growth in the euro area, lower growth in China, lower growth in other parts of the world,“ Gourinchas told Reuters in an interview.
Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.
However, medium-term growth prospects remained mediocre, with the five-year forecast stuck at 3.2%, below the historical average of 3.7% from 2000-2019, with no relief in sight absent significant structural reforms.
Trade would continue, but it would cost more and it would be less efficient, he said, citing confusion and uncertainty about where to invest, where to source products and where to buy components. “Restoring predictability, clarity to the trading system in whatever form is absolutely critical,“ he said.
The IMF downgraded its forecast for U.S. growth by 0.9 percentage point to 1.8% in 2025 - a full percentage point down from 2.8% growth in 2024 - and by 0.4 percentage point to 1.7% in 2026, citing policy uncertainty and trade tensions.
That meant the Federal Reserve will have to be very vigilant in keeping inflation expectations anchored, Gourinchas said, noting that many Americans were still scarred by a spike in inflation during the COVID pandemic.
U.S. stocks suffered steep losses on Monday as the U.S. president ramped up his attacks on Powell, fueling concerns about the central bank’s independence.
It predicted Mexico would be hard hit by tariffs, with its growth dipping to a negative 0.3% in 2025, a sharp 1.7 percentage point drop from the January forecast, before recovering to 1.4% growth in 2026.
The IMF forecast growth in the Euro Area would slow to 0.8% in 2025 and 1.2% in 2026, with both forecasts about 0.2 percentage points down from January. It said Spain was an outlier, with a 2.5% growth forecast for 2025, a 0.2 percentage point upward revision, reflecting strong data.
Growth in Britain would hit 1.1% in 2025, 0.5 percentage point below the January forecast, edging higher to 1.4% in 2026, reflecting the impact of recent tariff announcements, higher gilt yields and weaker private consumption.
China’s growth forecast was cut to 4% for 2025 and 2026, reflecting respective downward revisions of 0.6 percentage point and 0.5 percentage point from the January forecast.
Gourinchas said the impact of the tariffs on China - hugely dependent on exports - was about 1.3 percentage point in 2025, but that was offset by stronger fiscal measures.
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