The International Monetary Fund (IMF) slashed its global and U.S. growth forecasts on Tuesday, warning that the new wave of U.S. tariffs under President Donald Trump is already weighing on the world economy and roiling financial markets.
In its updated World Economic Outlook, the IMF called the tariff package a “significant negative shock,” with immediate fallout for equities and investor sentiment. The report, which includes data through April 4, reflects the first-round impact of the tariffs but not the later tweaks — including a 90-day delay on rate hikes and a smartphone exemption — rolled out by the White House after market backlash.
Markets didn’t wait for the fine print. Since Trump’s Rose Garden announcement on April 2, the S&P 500 has dropped 9%, erasing weeks of gains and raising fresh questions about the trajectory of the U.S. recovery.
The IMF now sees U.S. GDP growth at 1.8% in 2025, down from 2.7% in January. Global growth is revised to 2.8%, a half-point cut.
“The April 2 announcement forced us to rewrite nearly finalized projections,” said IMF Chief Economist Pierre-Olivier Gourinchas. “What usually takes over two months, we had to compress into ten days.”
But trade isn’t the only drag. Weakening consumer sentiment and softer household spending also played into the downgrade, Gourinchas said.
Recession risk is creeping higher. The IMF now puts the chance of a U.S. contraction at 40%, up from 25% last fall. While that’s not a base case, it marks a sharp increase in downside risk.
Inflation is also back in focus. For advanced economies — including the U.S., U.K., and Canada — the IMF now expects average inflation to hit 2.5% in 2025, up 0.4 points. The U.S. is projected at 3%, a full percentage point above the January forecast.
Behind the move: persistent service-sector inflation, rising core goods prices (excluding food and energy), and tariff-driven supply shocks. That inflation surge isn’t universal. While developed economies face upside risks, several emerging markets saw inflation estimates revised down.
The IMF flagged uncertainty around how central banks will respond. “Much depends on whether markets see these tariffs as temporary or structural,” the report said. The dollar, meanwhile, has broken with past crisis patterns. Instead of gaining ground, it has softened in recent weeks as equities sold off.
“Tariff effects on currencies are rarely linear,” Gourinchas noted. “If trade frictions drag on U.S. manufacturing productivity, the dollar could fall in real terms over the medium run.”
