The International Monetary Fund (IMF) has drastically cut its growth forecasts for 2025 due to the disruption caused by import tariffs introduced and proposed by the US.
In its latest World Economic Outlook, the IMF said the tariffs announced by US President Donald Trump on 2 April would cut global economic growth by 0.5 percentage points, reducing projected growth from 3.3% forecast three months ago to 2.8%.
The US economy is now expected to expand 0.9% in 2025, half the previous estimate of 1.8% from January, while the eurozone growth forecast has been cut by a fifth of 0.2 points to 0.8%.
The relative sluggish growth performance of the euro area was given as the much faster pace of interest rate cuts by the ECB compared to the US Federal Reserve.
The IMF stated its key recommendation to the government is to "restore trade policy stability and forge mutually beneficial arrangements."
The Fund was critical of the Trump administration's stance on trade, but said the global economy needs a clear and predictable trading system that addresses "long-standing gaps in international trading rules, including the pervasive use of non-tariff barriers or other trade-distorting measures."
The IMF added that economic projections are extremely difficult to make at this time due to the volatile natures of US tariff policy and the reactions of other countries, and that said volatility is mirrored in the stock, bond and commodity markets.
Shortly after announcing his administration's tariff regime, Trump soon postponed many of the announced tariffs for 90 days following a sustained sell-off on markets globally.
Substantial falls in equity markets recently, compounded by the risk of the burgeoning trade war, could lead to a further repricing of assets as investors sell stocks and bonds to buy more stable assets such as gold and silver.
The IMF further warned that political rows over trade policy could trigger further sell-offs and "sharp adjustments in foreign exchange rates and capital flows", especially for high-debt countries, which could face difficulties refinancing their debt, leading to broader financial instability, "including damage to the international monetary system".
In the foreword to the report, the IMF said "the lingering effects of the recent cost of living crisis, coupled with depleted policy space and dim medium-term growth prospects could reignite social unrest" in already emerging markets.
It also highlighted the impact of cuts to foreign aid by the White House and other developed nations seeking to divert funds into defence spending, arguing that developing countries could be pushed deeper into debt and forced to make budget cuts, further reducing living standards.
Conversely, the IMF affirmed that de-escalating the tariff war and finding new agreements to provide clarity and stability in trade policies could lift global growth.
Photo: IMF chief economist Pierre-Olivier Gourinchas (centre) and IMF research department deputy director Petya Koeva Brooks (right) take questions as they speak on the "World Economic Outlook" during the IMF/World Bank Group Spring Meetings in Washington, DC, on April 22, 2025. (Pic: JIM WATSON/AFP via Getty Images)
