The International Monetary Fund (IMF) has significantly lowered its expectations for global economic growth, warning of a fragile outlook shaped by rising trade tensions, inflation pressures, and investor uncertainty.
In its latest World Economic Outlook, the IMF now expects the global economy to expand by just 2.8% in 2025, down from 3.3% it had forecast in January. The forecast for 2026 has also been downgraded to 3%, compared to the earlier 3.3% projection.
The IMF’s projections reflect increasing caution over the health of the world economy, particularly as businesses and investors react to renewed trade tensions, primarily driven by the Trump administration’s tariffs.
Growth Slows, Recession Risks Rise In U.S.
The United States, which had been a major engine of global economic momentum, is now expected to grow only 1.8% in 2025, a sharp drop from 2.7% projected earlier and a full percentage point below 2024’s pace. Although the IMF does not anticipate a full-blown recession, it has increased its probability estimate to 37%, up from 25%.
Private sector forecasts paint an even darker picture. Economists at JPMorgan, for instance, now peg the odds of a US recession at 60%. The Federal Reserve also projects economic growth to decelerate to 1.7% this year.
“We are entering a new era,” said Pierre-Olivier Gourinchas, chief economist at the IMF. “This global economic system that has operated for the last eighty years is being reset.”
Tariff Fears Take Center Stage
One of the main variables shaking investor confidence is the uncertainty surrounding future US trade policy. The IMF cautioned that the lack of clarity on potential tariffs and protectionist measures “will likely weigh heavily on the US and global economies.”
Businesses may respond by delaying investment and hiring decisions, which could further slow growth. The IMF also warns of a potential “supply shock” in the US, similar to the disruptions seen during the pandemic, which had led to a spike in inflation.
China, Europe, and Japan: Slowing in Tandem
China, long considered a global growth anchor, has also seen its outlook revised downward. The IMF now expects Chinese GDP to expand 4% in both 2025 and 2026—about half a percentage point lower than earlier forecasts—mainly due to declining demand from the US amid tariffs.
According to Gourinchas, while the U.S. faces a supply shock, China is “expected to experience reduced demand as U.S. purchases of its exports fall.”
Inflation is also diverging across major economies. In the U.S., price growth is forecast to rise to 3% by the end of the year, while in China, inflation is expected to remain relatively flat.
In Europe, the economic damage is more contained. The 27-nation eurozone is projected to grow 0.8% in 2025 and 1.2% in 2026—just 0.2% below the January forecast in both years. The milder impact is attributed to lower US tariff exposure and supportive fiscal policy, especially in Germany.
Japan’s economic momentum is also weakening. Its growth is now expected to come in at just 0.6% this year and next, with forecasts marked down by 0.5 and 0.2 percentage points, respectively.
Markets React Sharply: Stocks Sink, Gold Soars
Investors are already responding to the cloudy economic picture. The S&P 500 index, which had gained more than 20% in both 2023 and 2024, has plunged 12.3% in 2025 so far. With Monday’s steep decline, the index has officially entered “correction” territory—more than 10% below its peak—and is edging closer to a bear market, defined by a 20% drop.
The tech-heavy Nasdaq is faring worse, down nearly 18%.
At the end of trading Monday, all three major U.S. indices were down more than 2.3%.
Global markets have been more resilient by comparison, particularly in Europe and Asia. But one of the biggest surprises is the behavior of assets traditionally seen as safe havens.
U.S. Treasuries, typically favored during times of turmoil, have turned volatile. The yield on the 10-year Treasury jumped after Trump’s tariff announcement, climbing from 4.80% in January to new highs. Since yields rise when prices fall, the spike suggests bond investors are increasingly nervous.
Meanwhile, the U.S. dollar hit a three-year low this week, signaling reduced confidence in the American economy as a global anchor.
The lone standout? Gold, which has consistently hit record highs, cementing its role as a rare safe asset in a year marked by volatility.
As the IMF’s latest warning shows, the world economy is entering a precarious phase—one marked not just by slower growth, but by more fragile trust in once-reliable systems.
