IMF slashes global growth forecasts due to Trump trade tensions
Newsflash: the International Monetary Fund has slashed its forecasts for global growth this year and in 2026, due to the disruption caused by Donald Trump’s trade war.
The IMF is now predicting that growth across the world economy will fall to 2.8% this year, down from 3.3% in 2024, followed by 3% growth next year. Back in January, the Fund had forecast 3.3% growth in both 2025 and 2026.
It blames the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, plus heightened uncertainty, and deteriorating sentiment.
In its latest World Economic Outlook, the Fund says:
“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity.”
Growth in advanced economies is now projected to be 1.4% in 2025, half a percentage point lower than it forecast in January.
The report also shows how Donald Trump has pushed up the US effective tariff rate to the highest in over 100 years – above the levels which compounded the Great Depression:
The IMF warns, soberly, that the outlook is dominated by “intensifying downside risks”.
Its World Economic Outlook says:
Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks.
Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger additional repricing of assets beyond what took place after the announcement of sweeping US tariffs on April 2 and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress.
Broader financial instability may ensue, including damage to the international monetary system.
Key events
Here are the IMF’s new forecasts for this year:
IMF Growth Projections: 2025
🇺🇸US: 1.8%
🇩🇪 Germany: 0.0%
🇫🇷France: 0.6%
🇮🇹Italy: 0.4%
🇪🇸Spain: 2.5%
🇬🇧UK: 1.1%
🇯🇵Japan: 0.6%
🇨🇦Canada: 1.4%
🇨🇳China: 4.0%
🇮🇳India: 6.2%
🇷🇺Russia: 1.5%
🇲🇽Mexico: -0.3%
🇸🇦KSA: 3.0%
🇳🇬 Nigeria: 3.0%
🇿🇦RSA: 1.0% pic.twitter.com/LzX730aUw6— IMF (@IMFNews) April 22, 2025
IMF’s Gourinchas: US economy was strong, before tariffs
The IMF are now holding a press conference on their latest economic forecasts – it’s being streamed here:
The first question: What would it take for the IMF to forecast a US recession this year?
Pierre-Olivier Gourinchas, the IMF’s chief economist, says the Fund is forecasting a “significant slowdown” in the US, with growth of 1.8% expected this year (down from a previous forecast of 2.7%).
That’s not a recession, he points out.
Gourinchas explains that the US economy entered the current trade war in good shape, which is why a recession isn’t expected this year.
He says”:
The reason for this is that we have a US economy that in our view is coming from a position of strength.
We had an economy that was growing very rapidly. We have a labour market that is still very robust.
But he cautions that there were some signs of “weakening and slowdown” in the US economy, even before the tariff announcements.
So, only 0.4 percentage points of the downgrade this year is due to the new tariffs, he explains.
Gourinchas also confirms that the Fund sees a greater risk of a US recession – up from 25% last October to around 40% now.
IMF says US recession now more likely
Oof! The International Monetary Fund now believes there is a greater risk of a US recession this year.
The Fund’s latest World Economic Outlook estimates that probability of a US recession occurring in 2025 is now 37%, up from 25% back in October.
It also sees a greater risk that US inflation is above 3.5% this year – this is now a 30% chance, up from 13% back in October.
Pierre-Olivier Gourinchas, the IMF’s chief economist, has told the Financial Times that the fund’s central forecast was that the US and global economies would avoid recession this year.
But, he warned:
“The major risk in front of us is that there could be further escalation in tariffs and trade tensions.
There is also the risk of financial conditions tightening much further than they have.”
The IMF is warning that “the world economy is entering a new era”….
Germany’s economy now isn’t expected to grow at all this year.
The Fund has cut its forecast for German growth this year to 0.0%.
Japan’s growth forecast has also felt the IMF’s scalpel – it’s been revised down to 0.6% this year, down from 1.1% forecast in January.
UK growth forecast cut
The IMF has cut its forecasts for UK growth too.
It now forecasts UK GDP will rise by 1.1% this year, down from 1.6% forecast in January.
Growth in 2026 has been trimmed to a forecast 1.4%, down from 1.5% predicted three months ago.
The IMF has sharply downgraded its forecast for US economic growth, having concluded that Donald Trump’s tariffs will disrupt trade.
The Funs now forecasts US GDP will rise by 1.8% this year, down from 2.7% forecast in January.
Its estimate for US growth in 2026 has been cut to 1.7%, down from 2.1%.
IMF slashes global growth forecasts due to Trump trade tensions
Newsflash: the International Monetary Fund has slashed its forecasts for global growth this year and in 2026, due to the disruption caused by Donald Trump’s trade war.
The IMF is now predicting that growth across the world economy will fall to 2.8% this year, down from 3.3% in 2024, followed by 3% growth next year. Back in January, the Fund had forecast 3.3% growth in both 2025 and 2026.
It blames the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, plus heightened uncertainty, and deteriorating sentiment.
In its latest World Economic Outlook, the Fund says:
“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity.”
Growth in advanced economies is now projected to be 1.4% in 2025, half a percentage point lower than it forecast in January.
The report also shows how Donald Trump has pushed up the US effective tariff rate to the highest in over 100 years – above the levels which compounded the Great Depression:
The IMF warns, soberly, that the outlook is dominated by “intensifying downside risks”.
Its World Economic Outlook says:
Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks.
Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger additional repricing of assets beyond what took place after the announcement of sweeping US tariffs on April 2 and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress.
Broader financial instability may ensue, including damage to the international monetary system.
Dario Perkins, economist at City firm TS Lombard, makes an excellent point – if Jerome Powell is forced out by Donald Trump, who would want to slide into the Fed chair’s shoes?
Seriously, given the overt pressure coming from this administration, who would want to be the next Fed chair anyway? In these circumstances, you have to be pretty suspicious of WHOEVER takes on the job next year…
— Dario Perkins (@darioperkins) April 22, 2025
Chart: Winners and losers since ‘Liberation Day’.
Deutsche Bank have helpfully created a chart showing how major assets have performed since Donald Trump’s “Liberation Day” tariff announcement.
The top performer is gold, followed by German government debt.
In last place, it’s big US technology stocks, followed by oil, for whom April 2 was more like Demolition Day.
Deutsche Bank’s market strategist Jim Reid explains:
Given that US assets went into Liberation Day as the most expensive in the world, and given that our previous work highlighted that US capitalism has benefited most from free trade globalisation, it’s not a surprise to see US assets generally at the bottom of the pile since the announcement. US equity valuations were on a par with the all-time peak in 2000 in Q1, mainly driven by tech. Since Liberation Day, the Mag-7 are down -12.6% and bottom of this pile. They are now -24.6% YTD and are still historically expensive.
Gold leads the way, with Bunds attracting flight to quality bond flows, mostly in relative terms to an underperforming US Treasury market. Indeed, the week after Liberation Day saw the biggest weekly widening in the 10yr UST-bund spread (+50bps) in data back to German reunification in 1990.
The DAX and Stoxx 600 are both down just over -5% in local currency terms, but are now slightly higher in USD terms which shows the global portfolio reallocation that is continuing. An impressive out-performance.
US conglomerate 3M has predicted that new US tariffs will hurt its earnings this year.
In its latest financial results, 3M suggest that tariffs could impact its full-year 2025 earnings by up to 40 cents a share.
3M predicted it would post adjusted 2025 earnings of $7.60 to $7.90 a share, with “additional tariff sensitivity” of 20 cents to 40 cents a share.
Argentex shares suspended after dollar slump causes margin calls
Currency risk management firm Argentex has suspended the trading of its shares, blaming the plunge in the value of the US dollar following Donald Trump’s tariff announcements and US government spending cuts.
The fall in the dollar has caused a flurry of margin calls on Argentex’s foreign exchange contracts, hurting its near term liquidity position.
In a statement to the City, Argentex says it has been exposed to “significant volatility in foreign exchange rates” this month, which had a “rapid and significant impact on its near term liquidity position”.
The turmoil triggered by Donald Trump’s tariffs has triggered a sharp drop in investor confidence among clients at investment platform Hargreaves Lansdown.
Hargreaves Lansdown reports that investors’ confidence plummeted across the board in April, with a 35% drop in confidence in North American markets and a 28% drop in the UK.
Confidence in UK economic growth also dropped significantly (down by 43%) among HL clients.
Victoria Hasler, head of fund research at Hargreaves Lansdown, says:
“In what has been an incredibly volatile time for both markets and politics, investor confidence has tumbled.
The first week of April saw President Trump introduce tariffs across virtually all its trading partners and pretty much all goods. The extent and level of tariffs imposed sent shockwaves through markets and our survey shows that investors lost confidence in droves.
While Trump later announced a 90-day rollback on the tariffs, this came too late to be reflected in our data and, regardless, has done little to calm investors.
