The International Monetary Fund (IMF) reduced its forecast for economic growth in the United States in 2025 amid tariffs and escalating trade tensions.
In its World Economic Outlook released Tuesday (April 22), the IMF projected U.S. GDP growth at 1.8%, down from its January estimate of 2.7%.
The IMF attributed the 0.9 percentage point downgrade primarily to the introduction of reciprocal tariffs announced by President Donald Trump April 2. These tariffs have since been suspended, but the damage has been done. The tariff announcement triggered retaliatory measures from other countries.
Additionally, the S&P 500 has dropped 9% since the tariff announcement, CNBC reported Tuesday.
“The common denominator … is that tariffs are a negative supply shock for the economy imposing them, as resources are reallocated toward the production of noncompetitive goods, with a resulting loss of aggregate productivity, lower activity, and higher production costs and prices,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in the outlook.
The resulting uncertainty could prompt firms to delay investment and reduce purchases, he wrote.
The latest growth forecast was compiled in less than 10 days. The process typically takes more than two months but was done in a hurry due to the sudden nature of the policy changes, Gourinchas wrote.
While the IMF is not predicting a recession for the U.S., Gourinchas said Tuesday that the probability of a downturn is now 40%, up from 25% in October, CNBC reported.
Looking at the global picture, the IMF lowered the growth forecast for 2025 to 2.8% from 3.3% in January, according to the outlook.
Inflation forecasts are trending upward. U.S. inflation is predicted to reach 3% in 2025, one percentage point higher than the IMF’s January projection, per the outlook, which cited “stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods (excluding food and energy) and the supply shock from recent tariffs.”
The inflation projection for advanced economies, which include the U.S., the United Kingdom and Canada, was raised to 2.5% for 2025, up 0.4 percentage points from January, per the outlook.
“In particular, the effects of recently imposed tariffs on inflation across countries will depend on whether the tariffs are perceived to be temporary or permanent, the extent to which firms adjust margins to offset increased import costs, and whether imports are invoiced in U.S. dollars or local currency,” the outlook said.
Meanwhile, businesses that proactively manage their working capital could gain a competitive advantage in today’s shifting environment. Earnings results reported this month revealed that flexibility and liquidity are now the name of the game.
