The outlooks for the U.S. and global economies have significantly worsened in the wake of President Donald Trump's tariffs and the uncertainty they have created, the International Monetary Fund said Tuesday.
The IMF said that the global economy will grow just 2.8% this year, down from its forecast in January of 3.3%, according to its latest World Economic Outlook. And in 2026, global growth will be 3%, the fund predicts, also below its previous 3.3% estimate.
All the major stock indices closed down more than 2% Monday. This comes on the heels of persistent criticism by President Trump against Federal Reserve Chairman Jerome Powell.
Investors are concerned Trump could try to fire Powell according to CBS News Business Analyst Jill Schlesinger.
"Right now there is a trade that is going on, not just selling stocks, but also selling the U.S. dollar," Schlesinger says. "The U.S. dollar fell to its lowest level in three years. Usually when you have tariffs, the dollar rises. This tells us that the international community is selling America."
The Fund sees the world's two largest economies, China and the United States, weakening: U.S. economic growth will come in at just 1.8% this year, down sharply from its previous forecast of 2.7% and a full percentage point below its 2024 expansion. The IMF doesn't expect a U.S. recession, though it has raised its odds of one this year from 25% to 37%.
China is also forecast to grow more slowly because of U.S. tariffs. The IMF now expects it will expand 4% this year and next, down roughly half a point from its previous forecasts.
"When we look at these two events, the president making these comments, saying he could fire the Fed, and then also listening to the Fed chair saying I'm going to push back against this, we have a real crisis of confidence," explains Schlesinger. "We don't want the president kind of pushing the Fed into a certain situation that might not be good for the economy long term."
The forecasts underscore the widespread impact of both the tariffs and the uncertainty they have created. Every country in the world is affected, the IMF said, by hikes in US import taxes that have now lifted average U.S. duties to about 25%, the highest in a century.
The forecasts are largely in line with many private-sector economists' expectations, though some do fear a recession is increasingly likely. Economists at JPMorgan say the chances of a U.S. recession are now 60%. The Federal Reserve has also forecast that growth will weaken this year, to 1.7%.
“We are entering a new era,” Pierre-Olivier Gourinchas, chief economist at the IMF, said. “This global economic system that has operated for the last eighty years is being reset.”
The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and to reduce global poverty.
Gourinchas said that the heightened uncertainty around the import taxes led the IMF to take the unusual step of preparing several different scenarios for future growth. Its forecasts were finalized April 4, after the Trump administration announced sweeping tariffs on nearly 60 countries along with nearly-universal 10% duties.
Those duties were paused April 9 for 90 days. Gourinchas said the pause didn’t substantially change the IMF’s forecasts because the U.S. and China have imposed such steep tariffs on each other since then.
The uncertainty surrounding the Trump administration’s next moves will also likely weigh heavily on the U.S. and global economies, the IMF said. Companies may pull back on investment and expansion as they wait to see how the trade policies play out, which can slow growth.
While the U.S. economy will likely suffer a “supply shock,” similar to what hampered during the pandemic and which pushed up inflation in 2021 and 2022, Gourinchas said, China is expected to experience reduced demand as U.S. purchases of its exports fall.
Inflation will likely worsen in the United States, rising to about 3% by the end of this year, while it will be little changed in China, the IMF forecast.
The IMF expects the tariffs to take a big chunk out of China's economy, but it also forecasts that additional spending by the Chinese government will offset much of the hit.
The European Union is forecast to grow more slowly, but the hit from tariffs is not as large, in part because it is facing lower U.S. duties than China. In addition, some of the hit from tariffs will be offset by stronger government spending by Germany.
The economies of the 27 countries that use the euro are forecast to expand 0.8% this year and 1.2% next year, down just 0.2% in both years from the IMF’s January forecast.
Japan’s growth forecast has been marked down to 0.6% this year and next, 0.5% and 0.2% lower than in January, respectively.
The Associated Press contributed to this story.