The International Monetary Fund sharply downgraded its U.S. growth forecast, while also lowering its outlook for the eurozone and China on the back of President Donald Trump’s tariff blitz.
The U.S. is now seen as growing by 1.8 percent this year, a 0.9 percentage point reduction from its January estimate, according to the IMF’s new World Economic Outlook, which is published twice a year. Growth forecasts for other major economies also were revised downwards: the eurozone saw growth knocked down by 0.2 percentage points and China by 0.6 percentage points.
The IMF’s latest forecast gives more ammunition to critics of Washington’s trade policy who allege that the U.S. will be the biggest loser in a trade war.
Mexico was the only large economy that saw a sharper downgrade, with a 1.7 percentage point negative revision for 2025.
The IMF pointed to how gauges of consumer, business and investor sentiment have all started to flash red since the U.S. administration launched its “Liberation Day” tariff package on April 2. “[S]entiment was optimistic at the beginning of the year but has recently shifted to a notably more pessimistic stance as uncertainty has taken hold and new tariffs have been announced,” reads the report.
The Fund has lowered its forecast for economic growth across all advanced economies to 1.4 percent this year, from 1.9 percent at its last quarterly forecast update in January. For the world at large, it now sees growth of only 2.8 percent this year, down from 3.3 three months ago.
Despite the downgrades, the U.S. is still expected to outperform the eurozone. The currency area is expected to grow by 0.8 percent in 2025, and 1.2 percent in 2026. Germany, its largest economy, is seen stagnating once again this year, with growth expected to pick up to 0.9 percent in 2026. The IMF flags Berlin’s decision to loosen its fiscal rules, as well as a pick-up in wages, as helping to fuel growth next year.
In China, a combination of a downturn in its real estate market as well as domestic imbalances towards exports has contributed to its mounting economic difficulties. Tariffs have “disproportionately” hurt the Asian economy, according to the IMF, which notes that a rebalancing towards greater domestic consumer demand is stalling.
Beyond harm to individual economies, the multilateral lender also warns of a potential unravelling in the financial markets, which have stayed volatile since April 2. Major stock market indices, most of all in the U.S., are well below their pre-“Liberation Day” levels. They could go still lower. The dollar has also seen its value relative to other major currencies eroded, another red flag.
“The U.S. dollar would typically be expected to appreciate if financial conditions deteriorate sharply,” reads the report. “But the international monetary system could experience a sudden reset, with potentially major implications for the dollar as its main pillar.”
The lender warned of potential social consequences of the further unravelling of the economic order, with populations already smarting from the recent bout of inflation and the cost-of-living crisis that followed at risk of “polarization and social unrest.”
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