The International Monetary Fund (IMF) has downgraded its US economic growth projection for this year, marking the largest cut among advanced economies, due to the uncertainty surrounding trade tariffs.
The new forecast for the US stands at 1.8%, down from an earlier estimate of 2.7% made in January.
The IMF warns that the sharp rise in tariffs and the associated uncertainty will lead to a significant global economic slowdown. The UK's growth forecast has also been lowered to 1.1% for this year.
Despite this, the UK is expected to outpace Germany, France, and Italy in terms of economic growth.
In the UK, inflation is predicted to be the highest among advanced economies, reaching 3.1% due to increased costs, including energy and water bills.
These updates come as top economic leaders gather in Washington for the IMF and World Bank's spring meetings. IMF Chief Economist Pierre-Olivier Gourinchas remarked that the global economy still bears the scars of the "severe shocks" over the past four years, and it faces new tests.
Meanwhile, President Donald Trump, after harshly criticizing Federal Reserve Chair Jerome Powell, affirmed on Tuesday that he had "no intention of firing" him. Concerns about Trump attempting to remove Powell had caused market instability.
Trump’s ongoing announcements about tariffs—taxes imposed on imported goods—have intensified the trade conflict. The US has imposed tariffs of up to 145% on Chinese goods, while China has retaliated with tariffs of 125% on US products.
Additionally, a 10% tariff has been placed on goods from most other countries, although higher rates have been paused for several nations for 90 days.
While Trump argues that tariffs will stimulate domestic consumption, raise tax revenue, and attract investment, the IMF cautions that these policies could harm global trade, given the interdependence of modern supply chains.
According to Gourinchas, "many firms will likely reduce investments and cut purchases" due to the growing uncertainty.
The IMF has lowered its global growth forecast to 2.8% for this year, down from 3.3%, and anticipates a modest 3.0% growth in 2026. The US downgrade is attributed to policy uncertainty, trade tensions, and weaker-than-expected consumer spending.
The IMF now estimates a 40% chance of a US recession this year, up from 25% in October 2024.
The IMF also revised its growth projection for China to 4% this year, down from 4.6%. In the UK, the downward revision reflects the impact of tariffs, increased government borrowing costs, and weaker consumer spending, particularly due to higher utility bills.
However, the IMF's forecast for the UK in 2025 is now closer to the government’s prediction of 1% growth, with the IMF projecting 1.4% growth for the next year.
In response, UK Chancellor Rachel Reeves emphasized that the country remains the fastest-growing European G7 economy and that reforms would bolster long-term growth.
She also expressed her commitment to defending British interests and advocating for free and fair trade during her visit to Washington.
On the other hand, Conservative shadow chancellor Mel Stride criticized the IMF's forecast, calling it a "worrying indictment" of Labour's economic approach and raising concerns about a lack of confidence and direction under the current government.
Other forecasts include a reduction in the eurozone's growth projection to 0.8% for this year, down from 1%. Spain's 2025 growth forecast was revised upward to 2.5% due to reconstruction efforts after recent floods.
Canada's growth forecast was lowered to 1.4% from 2%, while Mexico saw the most significant downgrade, now expected to contract by 0.3% this year, compared to a previous estimate of 1.4% growth.
The IMF acknowledged that its forecasts are never certain due to the many unpredictable factors that influence economic growth. The latest predictions, described as a "reference forecast," were based on data available as of April 4, just after the US imposed widespread tariffs.
Despite the temporary suspension of some tariffs, Gourinchas noted that the overall tariff rate remains high, and the uncertainty surrounding trade policy continues to affect the global outlook.
Source: BBC
BDST: 1219 HRS, APR 23, 2025
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