Trade tensions weigh on IMF’s outlook for global economy
The lender expects world growth to slow to 2.6% this year from 3.6% last year, while it upgraded its U.S. outlook.
The IMF says the world’s major economies have shown resilience but that their outlooks are weaker than before the trade war reignited.
Tariffs, inflation and other threats such as eroding central-bank independence are all clouding the world economic outlook, the International Monetary Fund said in its latest round of projections.
The IMF said the global economy is on pace to grow by 2.6% this year, measured on a fourth-quarter-versus-fourth-quarter basis. That is down from a projected 2.7% in its July forecast and a slowdown from 3.6% growth last year. Growth is projected to rebound next year to 3.3%, a 10th of a percentage point more than projected in July.
U.S. growth is now likely to slow to 1.9% this year, better than the 1.7% the IMF projected in July but down from 2.4% growth recorded in 2024. Next year, the IMF sees 2% U.S. growth.
So far, the U.S. has been spared the worst consequences feared when the Trump administration rolled out historically steep trade barriers in April. The White House has delayed or backed down from many of the measures, and agile planning by businesses helped many stock up on overseas goods ahead of time.
A flood of artificial-intelligence investment, booming financial markets and the promise of Federal Reserve interest-rate cuts have all helped, too.
But the weakening U.S. labor market, above-target inflation, surging government-debt levels and a “more fragmented landscape" driven by protectionist attitudes around the world show the potential problems ahead, the IMF said.
Trade-war risks were on display last week, when President Trump threatened an additional 100% tariff on China in response to new Chinese export restrictions on critical industrial minerals. The episode sent stocks tumbling Friday, though they recovered some of that ground Monday on signs Trump might not follow through.
The uncertainty for businesses and consumers from such headlines indicates how the trade war has weighed on the American economy even though it hasn’t tipped into a recession, said Pierre-Olivier Gourinchas, the IMF’s chief economist.
“Compared to [our expectation] a year ago, what we’re seeing very clearly is less growth and more inflation" in the U.S., Gourinchas said.
Of the latest tariff threats on China, he added, “The flare-up last week is an example of these things that can resurface very quickly and affect the outlook." The IMF’s forecasts were prepared before those tariff threats landed.
Meanwhile, a U.S. government shutdown has left policymakers without much of the official economic data they rely on. It adds to concerns around America’s economic institutions, following the administration’s broadsides against the Fed and the Bureau of Labor Statistics.
Such challenges aren’t limited to the U.S., Gourinchas said. He noted that as a long list of countries struggle with high debt burdens, more governments could be tempted to pressure their central banks to lower interest rates and juice the economy.
“There’s a narrative that emerges: ‘If only we had monetary-policy easing, that would generate more growth,’ " Gourinchas said. Such thinking risks problematic inflation down the line, he added.
For now, other major economies have also shown resilience, but their outlook also is dimmer than before the trade war reignited, according to IMF economists.
China benefited from a surge in demand for its exports earlier this year before tariffs hit, and then from a deal with the U.S. over the summer that eased tensions. But its latest trade-war impasse with the U.S. over rare-earth minerals shows that progress is fragile, Gourinchas said.
Growth prospects in Europe, the U.K. and Canada have either held mostly steady or been downgraded in recent months, the IMF said. All three have a tougher path ahead than a year ago, before Trump’s re-election cemented a new wave of global trade barriers, the IMF projected.
In the U.S., spending on AI infrastructure has been a strong economic boost, both directly and via soaring stock prices.
If AI turns out even more valuable than investors now expect, U.S. growth could surpass expectations and a hot economy could revive inflation, Gourinchas said. But if the technology disappoints, a big investment pullback and falling share prices could lead to a serious downturn, he said.
“A potential bust of the AI boom could rival the dot-com crash of 2000-01 in severity," IMF economists wrote.
Write to Matt Grossman at matt.grossman@wsj.com
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