African trade ministers meet today over US tariffs affecting exports
IMF warns of 0.8% hit to global growth amid rising trade war tensions
IMF warns of 0.8% hit to global growth amid rising trade war tensions
By: Abigail | 5 mins read
The International Monetary Fund (IMF) has cautioned that escalating trade tensions led by the United States are set to shave 0.8 percentage points off global growth, warning that the world economy is entering an uncertain and volatile phase.
According to the IMF, a wave of tariffs introduced by the US beginning in late January—and climaxing with near-universal levies on April 2—has pushed effective tariff rates above levels recorded during the Great Depression. The retaliatory actions by major trade partners have amplified the global impact.
“This abrupt increase in tariffs and attendant uncertainty will significantly slow global growth,” the IMF stated in its latest World Economic Outlook. “Reflecting the complexity and fluidity of the moment, our report presents a range of forecasts for the global economy.”
The Fund’s baseline forecast, which includes tariff moves between February 1 and April 4, anticipates global growth rates of 2.8% this year and 3.0% in 2026. This is a cumulative reduction of 0.8 percentage points compared to its January 2025 update.
By contrast, a scenario excluding the April tariffs—referred to as the “pre-April 2 forecast”—would have led to a more modest downgrade of only 0.2 percentage points, with global growth projected at 3.2% for both 2025 and 2026.
A third scenario in the IMF report factors in developments post-April 4, when the US paused most tariffs while hiking duties on Chinese imports. Despite the pause, global growth projections remained largely unchanged from the April 2 reference due to ongoing uncertainty and persistently high effective tariffs between the world’s two largest economies.
Even though the forecast marks a slowdown, it stops short of predicting a global recession. Inflation expectations have ticked up slightly by 0.1 percentage point per year, but disinflationary momentum persists. However, global trade is expected to decelerate more sharply than output, with trade growth revised down to 1.7% in 2025.
The IMF notes that the macroeconomic fallout will differ widely by region. For the US, domestic demand had already been weakening before the new tariffs, largely due to elevated policy uncertainty. As a result, the country’s 2025 growth forecast was slashed to 1.8%—down 0.9 percentage point from January, with tariffs alone accounting for 0.4 points of the decline. Inflation expectations in the US also rose by 1 percentage point, from 2%.
“Tariffs constitute a negative supply shock for the implementing jurisdiction, as resources are reallocated towards the production of less-competitive items with a resulting loss of aggregate productivity and higher production prices,” the IMF explained.
China’s economy, facing reduced demand from abroad, saw its growth projection drop by 0.6 percentage point to 4%, while inflation is expected to decline by about 0.8 percentage point. The Euro area, which has seen relatively lower tariff exposure, recorded a smaller downgrade of 0.2 points to 0.8% growth.
For emerging markets, the economic outlook hinges on how global tariffs evolve. The group’s growth forecast was revised down by 0.5 percentage point to 3.7%. The IMF warns that deep global supply chains could intensify the impact of rising tariffs. As most traded goods are intermediate products, any disruption could ripple across borders multiple times.
“Companies facing uncertain market access will likely pause in the near term, reduce investment and cut spending,” the report said. “Likewise, financial institutions will reassess borrowers’ exposure.”
The IMF also noted a sharp drop in oil prices as a sign of growing economic anxiety, while the effect of tariffs on currencies remains complex. Although past episodes suggest that tariff-imposing countries often experience currency appreciation, the current environment of high policy uncertainty and weakened US growth may counter that trend. The dollar has already shown signs of softening.
In the medium term, the IMF projects that if tariffs persist, lower productivity in the US tradable sector may lead to a real depreciation of the dollar.
The report highlights rising risks to global financial stability. Trade tensions and slowing growth could trigger further tightening of financial conditions. Though banks remain well-capitalized, financial markets may face severe tests if instability grows.
Nonetheless, the IMF believes swift changes in trade policy could reverse some of the damage. “Growth prospects could, however, immediately improve if countries ease their current trade policy stance and forge new trade agreements,” the report noted.
The Fund recommends that countries take targeted, prudent fiscal actions. For instance, the US should pursue fiscal consolidation, while Europe needs infrastructure investments to lift productivity. China, meanwhile, should increase domestic demand.
Restoring a predictable global trading framework remains central to reviving investor confidence. “The first priority should be to restore trade policy stability and forge mutually beneficial arrangements,” the IMF stressed. “The global economy needs a clear and predictable trading system addressing longstanding gaps in international trading rules, including the pervasive use of non-tariff barriers or other trade-distorting measures.”
Monetary policy should also stay agile. Countries experiencing inflationary pressure must tighten monetary policy forcefully, while others facing deflationary shocks may need to lower policy rates.
Emerging markets are particularly vulnerable to external volatility. The IMF’s Integrated Policy Framework advises letting currencies adjust according to fundamentals, though in some cases, intervention may be warranted.
High public debt, slow growth, and rising interest payments are compounding fiscal pressures worldwide. With limited fiscal space, countries must design gradual and credible consolidation plans, and in some low-income countries, there’s rising concern about debt distress.
Additional defense and social spending pressures are also mounting. In wealthier nations, temporary military outlays may be debt-financed. But in others, new expenditures should be matched by spending cuts or fresh revenues.
In the long run, governments must focus on growth strategies. This includes structural reforms that boost private sector participation, digital investments, and upskilling workers to harness the benefits of artificial intelligence.
Beyond the immediate disruptions, the IMF says it's time to reflect on the foundations of the current global system. Decades of globalization have lifted many economies, but the gains have not been evenly distributed.
“There is some merit to these grievances, even if the share of manufacturing employment in advanced economies has been in a secular decline in countries running trade surpluses, like Germany, or deficits, like the United States,” the report observed.
Technological progress and automation—not globalization alone—are more to blame for the loss of factory jobs, the IMF added. Still, better strategies are needed to manage the fallout and create inclusive growth.
“It is a collective responsibility to ensure the right balance between the pace of progress or globalization and addressing the associated dislocations,” the IMF emphasized.
As the world adapts to new economic realities, the IMF urges cooperation over confrontation. “Global integration is not an objective in and of itself. It is a means to an end, important insofar as it supports improved living standards for all.”
