Global Economic Growth Plummets: IMF Slashes Forecasts Amidst Tariff Uncertainty and Rising Inflation

The International Monetary Fund (IMF) has dramatically revised down its global economic growth forecasts for both the United States and the United Kingdom, citing escalating trade tensions fueled by tariffs imposed under the Trump administration. In a significant shift from previous projections, the IMF now predicts US economic growth to be just 1.8% this year, a substantial downgrade from their January estimate of 2.7%. Similarly, the UK’s economic growth is forecast to slow to 1.1%, down from an earlier projection of 1.5%.

The primary driver behind these downward revisions is the ongoing trade war between the US and China, with tariffs reaching unprecedented levels – up to 145% on Chinese goods and 125% on US products. This heightened uncertainty is prompting businesses to pause investment and reduce spending, contributing to a predicted ‘significant slowdown’ in global growth as outlined by IMF Chief Economist Pierre-Olivier Gourinchas. He emphasized the “severe scars” left by recent economic shocks, noting that the current situation is being “severely tested once again.”

Beyond the US and UK, other economies are also facing headwinds. The Eurozone’s growth forecast has been trimmed to 0.8% for this year, down from 1%, largely due to rising borrowing costs. Spain remains an outlier with a slight upgrade to its 2025 growth projection at 2.5%, primarily driven by reconstruction efforts following recent floods. However, Mexico is experiencing the most dramatic downgrade, projected to contract by 0.3% this year compared to a previous forecast of 1.4% growth.

The IMF’s revised forecasts also highlight a concerning rise in inflation within advanced economies, particularly in the UK where it’s predicted to reach 3.1%, the highest globally. This inflationary pressure is compounded by higher energy and water bills, further squeezing household budgets. Furthermore, there’s now a 40% probability of a US recession this year—a significant increase from October’s estimate of 25%. Banking group the Institute of International Finances has also predicted a “shallow recession” in the US for later this year.

The IMF’s World Economic Outlook also details forecasts for other nations, including China at 4% growth this year (down from 4.6%), and Canada at 1.4% growth, reflecting tariff uncertainty and geopolitical tensions. The IMF acknowledged that these figures are based on a ‘reference forecast’ established two days after President Trump announced sweeping tariffs. While a temporary tariff pause by the US has not materially altered the outlook, the overall effective tariff rate remains high, indicating continued uncertainty in the global trade landscape. The IMF’s forecasts predict a 2.8% global growth for this year and 3.0% for 2026, with the UK expected to grow to 1.4% next year.