Tariffs are posing major headwinds for the U.S. and global economies, leading the International Monetary Fund to slash its 2025 growth forecast.
President Donald Trump’s April 2 rollout of “reciprocal” tariffs has not only shaken stocks – the S&P 500 is down 9% since the levies were launched – but they also have set off countermeasures from other trading partners.
“This on its own is a major negative shock to growth,” the IMF said in the executive summary of its April 2025 World Economic Outlook.
This new outlook includes a “reference forecast” for global economic growth and inflation, based on data available as of April 4 — including the “reciprocal” tariffs but excluding subsequent developments like the 90-day pause on higher rates and the exemption on smartphones — and updates the earlier outlook the IMF shared in January.
In its new projections, the IMF now calls for a U.S. growth outlook of 1.8% in 2025, down 0.9 percentage point from its January forecast.
While it is not yet calling for a recession in the U.S., chief economist Pierre-Olivier Gourinchas told reporters Tuesday that the IMF now views recession odds at 40%, up from 25% in October 2024.
The IMF also cut back its global growth forecast to 2.8% in 2025, down 0.5 percentage point from its previous estimate.
“The April 2 Rose Garden announcement forced us to jettison our projections — nearly finalized at that point — and compress a production cycle that usually takes more than two months into less than 10 days,” chief economist Pierre-Olivier Gourinchas wrote in the April report.
“The common denominator … is that tariffs are a negative supply shock for the economy imposing them,” he said.
Higher inflation forecasts for advanced economies
The IMF also revised its expectations for headline inflation for advanced economies, which include the U.S., the United Kingdom and Canada, to 2.5% for 2025, reflecting an increase of 0.4 percentage point from January’s projection.
The U.S. inflation outlook was also revised higher by 1 percentage point from January, where it was estimated above the 2% range.
“For the United States, this reflects stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods (excluding food and energy) and the supply shock from recent tariffs,” the IMF noted in its April report.
The increase in inflation for major economies was offset by downward revisions across certain emerging markets and developing economies.
The extent to which the levies pressure central banks’ efforts to lower inflation is contingent “on whether the tariffs are perceived to be temporary or permanent,” according to the IMF’s report.
Previous bouts of market volatility have led to the U.S. dollar strengthening relative to other countries, creating upward inflationary pressure in other countries. However, the dollar has reversed this trend amid the recent market sell-off.
“The effect of tariffs on exchange rates is not straightforward,” per Gourinchas. “In the medium term, the dollar may depreciate in real terms if tariffs translate into lower productivity in the US tradables sector, relative to its trading partners.”
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