Global growth prospects have turned grim thanks to the trade tariffs, and the IMF’s latest World Economic Outlook lays out things as they are. Expressing concern over the shockwaves unleashed by Donald Trump’s trade policies, it has trimmed forecasts for almost every economy, besides paring global growth projections by 50 basis points to 2.8 percent for 2025. The world’s largest economy, the US, will witness a sharp deceleration from 2.7 percent to 1.8 percent, while many emerging economies may face significant slowdowns. The growth estimate for India is down from 6.5 percent to 6.2 percent. The downward revision is based on the tariffs announced between February 1 and April 4; but even if the April tariffs are excluded, global growth would dip to 3.2 percent for both 2025 and 2026. It means that the tariffs hit at a time the global economy was up to its neck with high inflation, high interest rates and geopolitical uncertainties.
According to the IMF, the US’s effective tariff rate has surged past levels last seen during the Great Depression, and the ‘resulting epistemic uncertainty and policy unpredictability’ drove the revisions. If abrupt tariff changes persist beyond Trump’s 90-day pause, it will further drag down global growth. More than its change in estimates, the IMF’s take on global trade confirms that the world order, under which countries have been operating for the last 80 years, is decidedly undergoing a reset. More countries are recognising that the decades of deepening trade ties fostered a rapid, but uneven, growth. The report notes that several advanced economies, particularly the US, regret that globalisation ‘unfairly’ displaced domestic manufacturing jobs and so want to usher in a new era. But it’s essential to ensure a balance between change and the associated dislocations, at least now.
The good news is that global growth prospects remain well above recession levels. While global inflation forecast is revised upwards by 0.1 percentage points for 2025 and 2026, helpfully, the disinflation momentum will remain uninterrupted. The biggest disappointment is the global trade outlook, which is expected to shrink more than output to 1.7 percent in 2025. To guard against the fallouts, India must restore trade policy stability and forge more bilateral pacts, and focus on fiscal and structural reforms to mobilise private resources—all without losing sight of growth.