The organization cautions against “premature” conclusions on shock from U.S. tariffs.
Kristalina Georgieva (3-R), managing director of the International Monetary Fund, speaks at an event on the future of finance at the 2025 IMF and World Bank Annual Meetings at IMF headquarters in Washington on Tuesday. Photo by Jim Lo Scalzo.EPA.
The International Monetary Fund on Tuesday projected the global economy to grow 3.2% in 2025, according to its latest World Economic Outlook.
This figure represents a slowdown from 3.3% growth in 2024 but a 0.2% upward revision from the IMF’s July projection, indicating more economic resilience than expected.
The modest predicted slowdown can be attributed to a muted shock from tariff announcements, IMF Chief Economist Pierre-Olivier Gourinchas said. But he warned of a downside risk from trade tensions that could result in a global output decrease of 0.2% by the end of 2026.
U.S.-China trade relations are especially strained, with back-and-forth escalation leading to an effective tariff on Chinese imports peaking at 145% in the spring. A 90-day truce was announced in May curbing escalating rates until Nov. 10.
Tensions flared last week when China’s Ministry of Commerce announced sweeping rare-earth export controls, affecting target sectors such as military and defense. President Donald Trump responded with a plan to enact an additional 100% tariffs Nov. 1 — a retaliatory move contingent on China’s decision to proceed with rare-earth material restrictions.
“Recent announcements last week make us all realize that trade uncertainty is still with us,” Gourinchas said.
Despite such tensions, Gourinchas said the tariff shock has been “smaller than initially feared.”
That’s due to exemptions that have accompanied tariff delays, allowing businesses to stock up on goods before deadlines. Gourinchas said booming U.S. investment in artificial intelligence has also mitigated shocks.
While the tariff surge had limited impact on global growth thus far, the IMF said in its report that it would be both “premature and incorrect” to assume this will apply to overall economic prospects, including that of the U.S.
The IMF projected the U.S. economy will grow 2% in 2025 and 2.1% in 2026, a drop from 2.8% in 2024, while inflation was revised upward. A shrinking U.S. labor market, partly due to a 1.1 million decline in foreign-born workers since January, indicates a negative supply shock could kick in and lower potential output, according to the outlook.
“You can think of this as another negative supply shock on top of the tariff shock,” Gourinchas said. “It’s potentially both reducing output and increasing inflation.”
Former World Trade Organization chief economist and American University economics Professor Robert Koopman said tariff delays can contribute to supply chain issues moving forward.
Levies ranging from 10% to 50% on timber and lumber went into effect Tuesday, as outlined by the White House proclamation published last month. They were originally announced to be implemented Oct. 1.
“This makes it an incredibly complex environment for firms to operate and to manage their supply chains, whether those supply chains are domestic or international,” Koopman said.
Gourinchas said international trade has not decreased qt this point, but relationships between nations have changed. He said there is less trade between the United States and China, in particular.
Tinglong Dai, a professor at the Johns Hopkins University Carey Business School, said Trump’s tariff announcements isolate the U.S. economy.
“America is not business friendly,” Dai said. “America is just really closing its market to the rest of the world.”
To build resilience to potential shocks, Gourinchas recommended that countries establish clear multilateral trade agreements and cautioned against protectionist measures.
He also encouraged nations to maintain existing relationships with trade partners and establish new ones.
“No country is an island that can do things on their own,” Gourinchas said.
