The “adverse effects” of US tariffs are “starting to show”, the International Monetary Fund (IMF) has warned.
While more protectionist trade measures have had a limited impact on the global economy to date, this is largely because households and businesses front-loaded their consumption and investment providing a temporary boost to activity, the Washington-based institute said in the latest outlook report.
These patterns have now largely reversed and “there are increasing signs that the adverse effects of protectionist measures are starting to show,” it said.
Core inflation and unemployment in the US have risen, it said.
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Inflation is also “stabilising” above central bank targets in several other countries and inflation expectations remain fragile “worsening the trade-offs for monetary policymakers as uncertainty and tariffs start weighing on activity,” it said.
The higher-tariff environment is also curtailing external demand “with profound implications for several large export-oriented economies, while heightened trade policy uncertainty is dampening firms’ appetite for investment,” it said.
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“As the global economy slides into a more fragmented landscape, risks to the outlook increase,” the institute said, noting that tactics to keep activity resilient, such as trade diversion and rerouting, were costly.
“It’s not as bad as we feared but it’s worse than we anticipated a year ago and worse than we need,” IMF chief economist Pierre-Olivier Gourinchas said in a briefing with reporters. “We still see the risks tilted to the downside.”
Despite the warnings, the fund upgraded its forecast for global growth this year to 3.2 per cent, a marginal increase on its July projection, decelerating to 3.1 per cent in 2026.
“The growth forecast is little changed from the July update, reflecting gradual adaptation to trade tensions, but is decisively below the pre-pandemic average of 3.7 per cent,” it said.
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Growth in the euro area is expected to pick up modestly to 1.2 per cent in 2025 and to 1.1 per cent in 2026 but this represents a cumulative downward revision of 0.4 percentage point compared to the IMF’s projections last October.
“Elevated uncertainty on multiple fronts and higher tariffs are the main drivers (of this revision),” it said.
Growth in the US is expected to slow to 2 per cent in 2025 and remain steady at 2.1 per cent in 2026, “broadly the same as in July and an improvement relative to April on account of lower effective tariff rates”.
“Trade policy uncertainty remains elevated in the absence of clear, transparent, and durable agreements among trading partners – and with attention starting to shift from the eventual level of tariffs to their impact on prices, investment, and consumption,” it said.
In its report, the IMF noted that the year 2025 “has been fluid and volatile, with much of the dynamics driven by a reordering of policy priorities in the United States and the adaptation of policies in the other economies to new realities.”
It said a new global economic landscape was emerging on the back of increased levels of trade protection, more restrictive immigration policies and a reduction in development aid.
“On the international side, sizeable cuts in development aid and more restrictive stances on immigration have been introduced,” it said, noting that official development assistance dropped by 9 per cent in 2024 and, based on announced cuts by major donors, a drop of similar magnitude is expected in 2025.
Net migration into several advanced economies that have been traditional recipients of migrant inflows has declined sharply, it said.
