IMF Warns of Global Economic Slowdown Triggered by Trump Tariffs
"World Economy Heading Downward"
As President Donald Trump wages a tariff war against the world, the International Monetary Fund (IMF) has sharply lowered its global economic growth forecasts for this year and next. In particular, the IMF significantly downgraded its outlook for U.S. growth, warning that the Trump-initiated tariff war could boomerang back as an economic slowdown in the United States.
In its World Economic Outlook (WEO) report released on the 22nd (local time), the IMF projected global economic growth of 2.8% for this year. This is a 0.5 percentage point downgrade from its previous forecast in January. It marks the lowest growth rate since the global COVID-19 pandemic in 2020, and the second lowest since 2009.
The IMF also lowered its global growth forecast for next year to 3.0%, down by 0.3 percentage points.
The growth rate for advanced economies is projected at 1.4% this year and 1.5% next year, each down by 0.5 percentage points and 0.3 percentage points compared to January. For developing economies, growth is forecast at 3.7% this year and 3.9% next year, both down by 0.5 percentage points and 0.4 percentage points, respectively, from the January outlook.
By country, the United States is expected to grow by 1.8% this year, a 0.9 percentage point downgrade from the previous forecast. Next year's U.S. growth rate is set at 1.7%, down 0.4 percentage points. China's growth rate, amid a trade war with the U.S. involving mutual tariffs of 125%, is projected at 4.0% for both this year and next, down by 0.6 percentage points and 0.5 percentage points, respectively, from previous estimates.
South Korea's growth rate for this year is forecast at 1.0%, a sharp downgrade of 1.0 percentage point. Other countries also saw their forecasts lowered compared to January: Germany 0% (down 0.3 percentage points), Japan 0.6% (down 0.5 percentage points), the United Kingdom 1.1% (down 0.5 percentage points), Canada 1.4% (down 0.6 percentage points), India 6.2% (down 0.3 percentage points), and Mexico -0.3% (down 1.7 percentage points).
The IMF also warned of tariff-driven inflation. It projects inflation for advanced economies such as the United States, United Kingdom, and Canada to reach 2.5% this year, up 0.4 percentage points from January. U.S. inflation is forecast at 3%, a full 1.0 percentage point higher than the previous estimate.
The IMF attributed its lowered growth forecasts and higher inflation projections for the United States and other countries to increased uncertainty caused by President Trump's tariff policies. The IMF explained that aggressive U.S. tariffs and retaliatory measures by trading partners are causing supply shocks, leading to higher prices and lower productivity. As a result of the tariff war, the IMF cut its global trade growth forecast for this year from 3.2% to 1.7%.
The IMF stated that the effective U.S. tariff rate has soared to its highest level in a century. While the IMF predicted that the U.S. would avoid a recession this year, it sharply raised the probability of a downturn from 27% in October of last year to 40%.
Pierre-Olivier Gourinchas, the IMF's chief economist, diagnosed that "risks to the global economy have increased and are clearly tilted to the downside." He added, "We are entering a new era," and assessed that "the global economic system that has operated for the past 80 years is being reset."
Additionally, the IMF warned that the decline in U.S. stock and bond prices since the announcement of reciprocal tariffs on the 2nd could undermine the stability and soundness of the financial system. The IMF also noted that all-encompassing tariff policies could shake the U.S. dollar's status as the key reserve currency.
Chief Economist Gourinchas analyzed, "If financial conditions deteriorate rapidly, the U.S. dollar would generally be welcomed, but the international monetary system could be suddenly reset," adding, "This could have a significant impact on the dollar, which is the foundation of major currencies."
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