"Since the release of the January WEO Update, a series of new tariff measures by the United States and countermeasures by trading partners have been announced and implemented, ending up in near-universal U.S. tariffs on April 2 and bringing effective tariff rates to levels not seen in a century," the report said.
Noting that the tariffs alone are a "major negative shock," the IMF said that the "unpredictability" with which these measures have unfolded negatively impacts economic activity and the outlook.
"The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era. Existing rules are challenged while new ones are yet to emerge," IMF Chief Economist Pierre-Olivier Gourinchas said at a press conference.
Under the reference forecast that incorporates information as of April 4, global growth is projected to drop to 2.8 percent in 2025 and 3 percent in 2026 â€" down from 3.3 percent for both years in the January WEO Update, and much below the historical (2000-2019) average of 3.7 percent, according to the latest WEO.
Growth in the United States is expected to slow to 1.8 percent, 0.9 percentage points lower relative to the projection in the January WEO Update due to "greater policy uncertainty, trade tensions, and softer demand momentum," the report noted.
Euro area growth is projected at 0.8 percent in 2025, 0.2 percentage points lower than the January forecast.
Growth in advanced economies is projected to be 1.4 percent in 2025, while in emerging market and developing economies, growth is expected to slow down to 3.7 percent in 2025.
The report also noted that intensifying downside risks dominate the outlook. "Ratcheting up a trade war, along with even more elevated trade policy uncertainty, could further reduce near- and long-term growth, while eroded policy buffers weaken resilience to future shocks," it said.
"Divergent and rapidly shifting policy stances or deteriorating sentiment could trigger further repricing of assets and sharp adjustments in foreign exchange rates and capital flows, especially for economies already facing debt distress. Broader financial instability may ensue, including damage to the international monetary system," it said.
Gourinchas said the IMF's policy recommendations call for "prudence and improved collaboration."
"The first priority should be to restore trade policy stability and forge mutually beneficial arrangements," said the IMF chief economist. "The global economy needs a clear and predictable trading system addressing longstanding gaps in international trading rules, including the pervasive use of non-tariff barriers or other trade-distorting measures."
Xinhua
Source : https://en.igihe.com/news/article/imf-downgrades-global-growth-forecast-to-2-8-in-2025
