The global economy is bracing for a more pronounced slowdown in 2025 than previously expected, driven by escalating trade tensions and heightened policy uncertainties. According to the latest insights from the International Monetary Fund (IMF), the repercussions of these factors are expected to dampen economic activity across various regions. The IMF has consequently revised its forecasts, particularly for emerging markets, highlighting their vulnerability within the intricate web of global supply chains.

Downgraded Global Growth Projections

The IMF’s World Economic Outlook (WEO) indicates that global GDP growth is now anticipated to reach only 2.8% in 2025, followed by a modest 3% in 2026. This marks a significant downgrade from the earlier predictions of 3.3% for both years made in January 2025, reflecting a cumulative reduction of 0.8 percentage points. To put this in perspective, these figures fall short of the historical average growth rate of 3.7% experienced between 2000 and 2019.

• Advanced economies are projected to see a mere 1.4% growth in 2025.
• The US economy is now expected to slow to 1.8%, nearly a full percentage point lower than previous forecasts.
• Europe is poised for a tepid 0.8% growth.

Emerging Markets Under Pressure

Emerging markets and developing economies are forecasted to experience a growth rate of 3.7% in 2025, with a slight increase to 3.9% in 2026. However, countries like China are predicted to face significant challenges due to recent trade policies. Meanwhile, India is expected to achieve a GDP growth of 6.2% in 2025-26, revised down from an earlier estimate of 6.5%.

Inflation Trends and Economic Outlook

Global inflation is projected to decrease more slowly than anticipated, hitting 4.3% in 2025 and 3.6% in 2026. The adjustments show upward revisions for advanced economies, while emerging markets may see slight declines. The IMF’s executive summary underscores the pervasive impact of trade tensions and policy uncertainty on global economic dynamics.

Significant Trade Policy Changes

The escalation of trade disputes, notably following the April 2025 imposition of sweeping tariffs by the US, has contributed to this outlook. Under President Donald Trump’s ‘Liberation Day’ initiative, a 10% flat tariff on all imports was enforced starting April 5, with higher tariffs targeting specific countries implemented shortly thereafter. For instance, India faced a 27% duty, while China and Vietnam encountered tariffs of 34% and 46%, respectively.

These tariffs have disrupted global trade, elevated costs, and heightened economic uncertainty. However, in a bid to ease tensions, the US recently suspended the April tariff hikes for 90 days for all nations except China, which now faces duties as high as 145%. The baseline 10% tariff remains applicable to other countries.

Conclusion

The current global economic landscape reveals a complex interplay of factors affecting growth and stability. As the IMF warns, an intensified trade war and ongoing policy uncertainties could lead to further declines in both near- and long-term growth prospects. With these challenges looming, the world must remain vigilant and prepared for potential disruptions ahead.

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