The IMF just slashed its global growth outlook — and said the US will be hit hard in the trade war

• The IMF slashed its global growth outlook significantly due to trade war risks.
• The US growth forecast was hardest hit among advanced economies.
• Projections would improve immediately if countries ease trade tensions.

The International Monetary Fund on Tuesday cut its global growth outlook, citing President Donald Trump's tariff spree as the start of a "new era" for the world economy.

The group sharply reduced its growth forecast to 2.8% for this year, 0.5 percentage points below its outlook in January. According to Bloomberg, this will mark the slowest expansion since 2020, and the second-worst outlook since 2009.

The IMF expects global growth to reach 3% in 2026, or 0.3 percentage points below its previous forecast.

"The resulting epistemic uncertainty and policy unpredictability is a major driver of the economic outlook. If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth," the IMF justified in its latest World Economic Outlook.

The group referenced the massive trade overhaul Trump is trying to enforce by unleashing a volley of tariffs on all US trade. The White House has argued that the sweeping duties on imports, introduced earlier this month, will prompt nations to renegotiate trade deals with the US.

But they have also spurred enormous recession anxiety and fears of more inflation.

Though the IMF is still optimistic that a global recession can be side-stepped, it sees the US as among the biggest victims of Trump's pivotal policy moves.

The US economic outlook was slashed the most among advanced economies. The IMF expects US growth to reach 1.8% and 1.7% this year and next year.

For comparison, the US expanded by 2.8% in 2024.

"The downward revision is a result of greater policy uncertainty, trade tensions, and a softer demand outlook, given slower-than-anticipated consumption growth," the report said.

While circumstances could immediately improve if hardline trade stances relax, there's also the risk that worsening tensions weigh further on growth, the IMF warned.

"Financial conditions could tighten further as markets react negatively to the diminished growth prospects and increased uncertainty. While banks remain well capitalized overall, financial markets may face more severe tests," it said.