US tariffs leading to global trade disruption and unprecedented uncertainty is set to significantly slow growth in economies around the world, the International Monetary Fund (IMF) has warned.
The organisation said it is slashing its global growth forecast by 0.5 percentage points this year, with nearly all countries seeing a downgrade.
The latest World Economic Outlook report was produced under “exceptional circumstances”, with the IMF being forced to change its projections after US President Donald Trump unveiled a range of new and higher tariffs earlier this month.
The IMF’s top economist, Pierre-Olivier Gourinchas, said: “We are entering a new era as the global system that has operated for the last 80 years is being reset.”
He added: “While many of the scheduled tariff increases are on hold for now, the combination of measures and countermeasures has hiked US and global tariff rates to centennial highs.
“For this reason, we expect that the sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term.”
Global growth is projected to fall from 3.3% in 2024 to 2.8% in 2025, before edging up to 3% in 2026.
This is lower than the IMF’s previous forecasts, published in January, by 0.5 percentage points for 2025 and 0.3 percentage points for 2026.
The outlook for nearly all countries has been downgraded, reflecting the direct effect of new trade measures and the knock-on impact on uncertainty, which has surged to “unprecedented” levels, and deteriorating sentiment among consumers and businesses.
The UK economy is predicted to grow by 1.1% this year, 0.5 percentage points less than January’s forecast, partly reflecting tariffs, as well as weaker consumption amid higher inflation driven by bills and energy price hikes.
Growth will nonetheless be stronger in the UK than Germany – which is predicted to flatline this year – France, and Italy.
Meanwhile, inflation forecasts have been revised upwards for advanced economies since January, with the UK and the US being hit hardest.
UK inflation is set to be 0.7 percentage points higher this year, compared with the previous forecast, at 3.1% – largely due to prices like water and electricity rising from April.
This is higher than all other countries in the group of seven advanced economies (G7), which incorporates Germany, France, Italy, Japan, Canada, and the US.
Chancellor Rachel Reeves said the new forecasts show “the UK is still the fastest-growing” European country in the G7.
“The IMF have recognised that this Government is delivering reform which will drive up long-term growth in the UK, through our Plan for Change,” she said.
“The report also clearly shows that the world has changed, which is why I will be in Washington this week defending British interests and making the case for free and fair trade.”
Shadow chancellor Mel Stride said: “At a time when families are looking for stability and support, Labour’s policies are stifling growth, pushing up the cost of living and leaving us vulnerable to external shocks.”
Global trade growth projections have been slashed by 1.5 percentage points since the previous World Economic Outlook.
The IMF warned over the increased risk of a trade war, which would particularly hit China and the US but also many countries in Asia and Europe.
The organisation stopped short of forecasting a recession in the US, but slashed its growth forecast for the world’s biggest economy to 1.8%, down by 0.9 percentage points since its last prediction.
It added that the risk of a recession in the US had increased sharply from about a 25% probability to around 40%.
China is predicted to grow by 4% this year, down from the IMF’s previous forecast of 4.6%.
The IMF also stressed that central bank independence was important in the fight against rising inflation amid concerns over Mr Trump’s renewed attack on US Federal Reserve chairman Jerome Powell, branding him a “major loser” for not cutting rates.
Mr Gourinchas said at an IMF press briefing: “The critical thing is to make sure that inflation expectations remain anchored and that central banks do what’s necessary to bring inflation back to targets.
“Central banks need to remain credible and part of that is built upon their central bank independence.
“From that perspective, it’s very important to preserve that.”
The IMF report also showed that heightened uncertainty around trade policy has also weakened the overall outlook, with many global firms likely to react to tariffs by suspending or reducing investments and cutting spending.
Banks may also slow lending to businesses while they assess how exposed borrowers will be to the new trade environment.
The global economy is being “severely tested” with the risk that trade retaliation may ratchet up tensions, while financial markets could continue to react sharply to lower growth prospects, according to the IMF.
However, the IMF said there is also the opportunity for more positive consequences depending on how countries work together and address the new challenges.
“If countries de-escalate from their current tariff stance, and co-ordinate to deliver clarity and stability on trade policy, the outlook could immediately brighten,” Mr Gourinchas said.
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