Global growth set to slow sharply amid trade tensions, policy uncertainty: IMF

Global economic growth is set to slow more sharply in calendar year 2025 than anticipated as rising trade tensions and elevated policy uncertainty dampen activity, the International Monetary Fund (IMF) said Tuesday in its latest World Economic Outlook (WEO) 2025.

The IMF downgraded forecasts for emerging economies, citing their integration with global supply chains, declining investments amid uncertainty, and weakened demand due to tariffs.

Global gross domestic product (GDP) is now projected to grow 2.8% in 2025 and 3% in 2026—down from the 3.3% forecast for both years in the January 2025 update. This marks a cumulative downgrade of 0.8 percentage points, well below the 2000-2019 average of 3.7%, the IMF noted.

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Advanced economies are expected to expand just 1.4% in 2025. The US economy is projected to slow to 1.8%—nearly a full percentage point lower than previous estimates—due to softer demand, policy uncertainty, and trade frictions.

Europe is expected to grow at a modest 0.8%, while emerging markets and developing economies are forecast to expand by 3.7% in 2025 and 3.9% in 2026, with China among the hardest hit by recent trade measures.

Meanwhile, India’s 2025-26 GDP growth is expected to be 6.2%, down from its earlier estimate of 6.5%.

Global inflation is expected to ease more gradually than previously projected, reaching 4.3% in 2025 and 3.6% in 2026, with upward revisions for advanced economies and slight downward adjustments for emerging markets, the WEO said.

“The swift escalation of trade tensions and extremely high levels of policy uncertainty are expected to have a significant impact on global economic activity,” the IMF said in the WEO's executive summary.

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“Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks,” it warned.

In April 2025, the US imposed sweeping tariffs under US President Donald Trump's ‘Liberation Day’ initiative to curb trade imbalances and protect domestic industries.

A 10% flat tariff on all imports took effect on 5 April, followed by higher, country-specific reciprocal tariffs from 9 April—India was hit with a 27% duty, while China and Vietnam faced 34% and 46%, respectively.

The move disrupted global trade, raised costs, and added to economic uncertainty. However, in an effort to defuse mounting tensions, the US has since suspended the 9 April tariff hike for 90 days for all countries but China, which now faces duties up to 145%. The 10% baseline tariff remains in place for other countries.    

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