IMF Cuts Global Growth Outlook Amid Trump Tariffs, Has Warning For India Too

The International Monetary Fund (IMF) has cut its global economic growth forecast, citing the escalating trade war triggered by US President Donald Trump's aggressive tariff policies. In its latest World Economic Outlook (WEO) released this week, the IMF warned of widespread economic slowdowns and rising financial instability across developed and developing economies alike. While India’s growth remains relatively stable, the outlook for major economies such as the US, China, Canada, and Japan has taken a sharp downward turn.

The new projections indicate a notable dip in global GDP expansion, forecasting growth of just 2.8% in 2025—down 0.5 percentage points from the Fund’s January 2025 forecast. For 2026, global growth is projected to reach 3.0%, still 0.3 percentage points lower than previously anticipated. The IMF made it clear that the uncertainty surrounding Trump’s stop-start tariff strategy has heightened financial risks and disrupted global trade channels, sparking fears of a broader recession.

President Trump’s imposition of steep tariffs on virtually all major US trading partners has drawn criticism from international finance officials and sparked a flurry of diplomatic activity in Washington. According to White House press secretary Karoline Leavitt, 18 nations have already submitted tariff negotiation proposals, while meetings with 34 countries are scheduled this week in hopes of easing tensions. Trump, meanwhile, struck an optimistic tone, saying he believes a deal with China could significantly lower tariffs and potentially stabilize markets.

However, the IMF remains cautious. The current projections incorporate only the tariffs announced before April 4, 2025, meaning Trump’s latest salvo—raising tariffs on Chinese goods to 145%—is not reflected in the outlook. Should these new measures be sustained, the IMF warns, the negative effects on global economic growth could be even more severe.

Pierre-Olivier Gourinchas, the IMF’s chief economist, described the situation as a major shift in the global economic system, one that threatens to unravel decades of progress in international cooperation. “We are entering a new era,” Gourinchas stated, “as the global economic system that has operated for the last 80 years is being reset. If sustained, increasing trade tensions and uncertainty will slow global growth.”

The IMF also raised its forecast for global consumer prices, now predicting inflation at 4.3% in 2025 and 3.6% in 2026. This increase is attributed to rising production and transport costs resulting from tariff impositions, which have disrupted supply chains and driven up prices worldwide.

In a separate Global Financial Stability Report, the IMF flagged additional concerns. It said the unpredictability of US tariff rollouts has significantly increased risks to financial stability. “Tighter global financial conditions and heightened economic uncertainty” are now placing strain on investor confidence and financial markets, the report stated.

The impact of the US trade war is being felt globally. China, the world's second-largest economy, is expected to experience a sharp decline in growth—from 5.0% in 2024 to just 4.0% this year—despite ramped-up government spending. Canada and Mexico, both major trading partners of the US, have also seen their growth forecasts slashed. Mexico is now projected to contract by 0.3% in 2025, a full 1.7 percentage-point drop from the January estimate. Canada is also facing a significant slowdown.

Japan, the world’s third-largest economy, is forecast to grow by only 0.6% in both 2025 and 2026, marking a considerable downward revision. European economies haven’t been spared either. The IMF now expects the euro area to expand by just 0.8% this year, and 1.2% the next—well below earlier expectations.

The Middle East has been sharply downgraded due to ongoing geopolitical conflicts and disruptions in oil production. However, the IMF expects a modest recovery starting in 2026 as these factors gradually ease. In sub-Saharan Africa, growth is expected to dip slightly to 3.8% this year before rebounding next year.

For India, the outlook is more stable but not immune. The IMF forecasts India’s GDP growth at 6.2% for 2025, supported primarily by rural consumption. However, this figure is 0.3 percentage points lower than the January 2025 projection, a revision attributed to heightened global uncertainty and the cascading impact of worldwide trade tensions. The Fund acknowledged that India’s strong domestic demand and policy support could buffer some of the external shocks, but warned that the country must remain vigilant amid ongoing volatility.

The message from the IMF is clear: escalating trade tensions, particularly those driven by unilateral tariff measures, are threatening to derail global growth. The Fund has urged world leaders to prioritize dialogue and cooperation over economic confrontation.

As Trump’s tariffs continue to shape the global economic landscape, the question remains—will diplomacy prevail before the damage becomes irreversible?

Stay tuned for more updates as negotiations unfold and the global economy braces for an uncertain road ahead.