Introduction
The International Monetary Fund (IMF) has downgraded its growth projections for the United States, China, and most countries, citing the impact of Donald Trump’s tariffs, which are now at their highest level in a century. The IMF has also warned that further trade tensions will slow global growth even more.
Background on the IMF and Its Relevance
The International Monetary Fund (IMF) is an international organization that aims to promote global monetary cooperation, secure financial stability, facilitate international trade, and provide resources to help member countries overcome economic challenges. As one of the world’s major international financial institutions, its policies and forecasts significantly influence global economic decisions.
Key Points from the IMF Update
- Global Growth Reduction: The IMF reduced its global growth forecast by 0.5 percentage points to 2.8% for 2025 and by 0.3 percentage points to 3% for 2026, down from its January projection of 3.3% for both years.
- Inflation Expectations: The IMF expects inflation to fall more slowly than initially projected due to tariff impacts, reaching 4.3% this year and 3.6% in 2026, with significant upward revisions for advanced economies like the United States.
- Trade and Commerce Impact: The IMF cut its global trade forecast by 1.5 percentage points to 1.7%, reflecting the accelerated fragmentation of the global economy.
- Regional Growth Projections: The IMF downgraded growth forecasts for several regions, including the United States, Canada, Mexico, the Eurozone, Germany, the UK, and China.
United States Growth Projections
The IMF lowered its growth projection for the United States by 0.9 percentage points to 1.8% in 2025 and by 0.4 percentage points to 1.7% in 2026, citing political uncertainty and trade tensions.
- Inflation: The IMF now estimates that general inflation in the United States will reach 3% in 2025, up by one percentage point from its January forecast due to tariffs and the strong underlying services sector.
- Monetary Policy: The Federal Reserve must remain vigilant to keep inflation expectations anchored, as many Americans are still grappling with increased inflation during the COVID-19 pandemic.
Canada and Mexico Growth Projections
Canada and Mexico, neighbors of the United States affected by various Trump tariffs, also saw their growth projections reduced.
- Canada: The IMF now projects Canada’s economy to grow by 1.4% in 2025, down from the earlier projection of 2%, and by 1.6% in 2026.
- Mexico: Mexico is expected to be hard-hit by tariffs, with its growth projected to fall to -0.3% in 2025, a decrease of 1.7 percentage points from the January forecast, before recovering to 1.4% growth in 2026.
Eurozone, Germany, and the United Kingdom Growth Projections
The IMF expects the Eurozone’s growth to slow down to 0.8% in 2025 and 1.2% in the following year, both approximately 0.2 percentage points below January’s projections.
- Eurozone:
- Spain’s growth is projected to reach 2.5% in 2025, an upward revision of 0.2 percentage points, reflecting solid data.
- Germany: The IMF cut its growth forecast for Germany by 0.3 percentage points to 0.0% in 2025 and by 0.2 percentage points to 0.9% in 2026.
- United Kingdom: The UK’s growth is expected to reach 1.1% in 2025, 0.5 percentage points below the January forecast, and rise slightly to 1.4% in 2026, reflecting the impact of recent tariff announcements, higher bond yields, and weaker private consumption.
China Growth Projections
The IMF reduced China’s growth forecast to 4% for both 2025 and 2026, reflecting downward revisions of 0.6 and 0.5 percentage points, respectively, from the January forecast.
The impact of tariffs on China—which heavily relies on exports—is estimated to be around 0.3 percentage points in 2025, but this is offset by stronger fiscal measures.
Key Questions and Answers
- Q: What is the IMF’s main concern?
A: The IMF is concerned about the rapid escalation of trade tensions and the “extremely high” levels of uncertainty surrounding future policies, which will significantly impact global economic activity.
- Q: How will the tariffs affect global growth?
A: The IMF expects trade tensions and tariffs to reduce global economic activity by 0.5 percentage points in 2025 compared to the January forecast.
- Q: What are the revised growth projections for major economies?
A: The IMF has downgraded growth projections for the United States, Canada, Mexico, the Eurozone, Germany, the UK, and China due to tariffs and trade tensions.
