IMF slashes U.S. growth forecast amid tariff tensions and inflation concerns

The International Monetary Fund (IMF) has significantly downgraded its growth forecast for the United States in 2025, citing mounting trade tensions and inflationary pressures. In its April World Economic Outlook released Tuesday, the IMF revised its U.S. economic growth projection from 2.7% to just 1.8%—a sharp 0.9 percentage point drop from its January estimate.

According to IMF Chief Economist Pierre-Olivier Gourinchas, this revision was triggered largely by the April 2 announcement from President Donald Trump, who unveiled a series of "reciprocal" tariffs aimed at countering what the administration described as unfair trade practices. These new levies have sparked global concern, roiled financial markets, and prompted retaliation from international trading partners.

“This on its own is a major negative shock to growth,” the IMF warned in its executive summary.

Since the tariffs were imposed, the S&P 500 has plunged 9%, reflecting broader market unease. The IMF noted that the announcement caused them to scrap projections that were nearly finalized and complete a new economic outlook in just 10 days—a process that typically takes more than two months.

Gourinchas emphasized that tariffs function as a supply shock to the imposing economy. "The common denominator," he said, "is that tariffs are a negative supply shock for the economy imposing them."

This reassessment also takes into account weakening consumer confidence and a slowdown in household consumption, further dimming the U.S. economic outlook. Although the IMF stopped short of predicting a recession, it now sees the likelihood at 40%—up from 25% in October 2024.

In addition to the reduced growth outlook, the IMF also raised its forecast for U.S. inflation. Headline inflation for the U.S. is now expected to reach 3% in 2025, a full percentage point higher than previously projected. This reflects persistent inflation in the services sector and a recent uptick in the prices of core goods, excluding food and energy.

Inflation forecasts for other advanced economies, including the United Kingdom and Canada, were also revised upward to 2.5%. Conversely, projections were adjusted downward for select emerging and developing economies, balancing the global inflation picture.

The uncertainty surrounding the long-term impact of tariffs adds complexity to the challenge faced by central banks. The IMF report suggests that the ability of monetary authorities to rein in inflation will depend heavily on whether these tariffs are seen as temporary measures or permanent policy shifts.

Globally, the IMF now expects 2.8% growth in 2025, down from its earlier estimate of 3.3%. Much like in the U.S., international markets have been shaken by trade policy unpredictability and concerns about broader economic instability.

While the U.S. dollar has historically strengthened during past episodes of market volatility, the IMF observed a recent reversal of that trend during the latest sell-off. “The effect of tariffs on exchange rates is not straightforward,” Gourinchas explained. He warned that, over the medium term, the dollar could depreciate in real terms if the productivity of the U.S. tradables sector declines relative to its global competitors.

The IMF’s latest report serves as a stark warning that protectionist trade policies and inflationary headwinds could stifle economic growth both in the United States and around the world. As the global community navigates a rapidly evolving economic landscape, the long-term implications of these tariffs—and the reactions they provoke—remain uncertain.

In the meantime, financial markets, central banks, and policymakers will need to tread carefully, balancing domestic priorities with the broader needs of an increasingly interconnected global economy.