Quick Bites | IMF Lowers Growth Forecasts

Quick Bite –IMF Lowers Growth Forecasts

The International Monetary Fund (IMF) said on Tuesday 22 April that the sharp rise in tariffs since the start of the year will see most economies grow more slowly than previously expected, with the US suffering one of the largest hits.

In its quarterly report on the outlook for the global economy, the IMF said US tariffs now exceed the highs reached during the Great Depression, marking a departure from the long period of relatively low barriers to trade that began to unfold after World War II.

Pierre-Olivier Gourinchas, the IMF’s economist, said “We’re entering a new era as the global economic system that has operated for the last 80 years is being reset.”

Source: IMF

The IMF said the immediate impact of the rise in tariffs will be to slow economies around the world. It lowered its forecast for global economic growth this year from 3.3% to 2.8%, a downgrade that is slightly larger than that following Russia’s invasion of Ukraine in early 2022. For 2026, it now sees global growth of 3%, down from 3.3% previously.

Mexico is set to suffer the largest reversal of the big economies for which the IMF provides forecasts and is now expected to see its economy contract by 0.3% in 2025.

The US economy is also expected to suffer significant damage, with growth in 2025 now forecast at 1.8%, down from 2.7% when the fund’s last forecasts were published in January. A further slowdown to 1.7% is expected for 2026, with the IMF having previously forecast an expansion of 2.1%.

Gourinchas said the probability of a recession in the US has risen, but it remains an unlikely outcome.

Source: IMF

What about Australia?

The IMF has cut its growth forecast for the Australian economy by half a percent in recognition that we won’t be immune from the global slowdown triggered by the trade war. The IMF’s world economic outlook report forecast Australia’s economy to grow at just 1.6% in 2025 (down from 2.1% forecast in January). If correct, that would extend our economy’s weakest period of growth (outside of the 2020 pandemic) since the early 1990s recession. The IMF’s outlook for Australia is well below the 2% plus growth that the RBA and Treasury have forecast.

Source: Guardian