IMF cuts U.S. growth forecast as tariffs and uncertainty weigh on outlook

Investing.com -- The International Monetary Fund has sharply revised down its U.S. growth forecast, citing trade tensions, policy uncertainty, and weakening domestic demand. In its April 2025 World Economic Outlook update, the IMF now expects U.S. GDP to expand by 1.8% this year, down 0.9 percentage points from its January projection.

Roughly half the downgrade is attributed to the economic impact of recently enacted U.S. tariffs, which surged in April following earlier actions starting in February. The effective tariff rate now exceeds levels seen during the Great Depression, according to IMF Chief Economist Pierre-Olivier Gourinchas.

In addition to lower growth, the IMF raised its U.S. inflation forecast by a full percentage point, reflecting increased import costs and supply chain adjustments. Despite sharp equity volatility in recent weeks, policymakers have not reversed course on trade policy, keeping global uncertainty elevated.

The IMF said that heightened protectionism and policy unpredictability are weighing on business investment, corporate confidence, and financial conditions. It warned that continued trade conflict could further reduce productivity and slow long-term growth prospects.

While the U.S. saw one of the steepest growth downgrades, China and the euro area were also revised lower to 4.0% and 0.8%, respectively, with emerging markets expected to react unevenly depending on their position in global supply chains. Global GDP is now expected to grow by 2.8% in 2025 and 3.0% in 2026—both lower than earlier projections.

The IMF noted that the dollar could face medium-term depreciation pressures if tariffs undercut U.S. productivity, even if safe haven demand offers temporary support. Oil and equities have declined in response to tightening financial conditions and growing market caution.

Restoring trade policy stability remains a top IMF recommendation, alongside flexible monetary policy and targeted fiscal consolidation. The Fund emphasized that avoiding deeper fragmentation of the global economy will require stronger multilateral cooperation.

Gourinchas concluded that while a global recession is not forecast, the world may be entering a higher-volatility regime if policy gaps continue to widen. For the U.S., the prospect of a more stable recovery increasingly hinges on decisions made over the coming months.

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