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The US is facing an increased risk of recession after Donald Trump’s trade war pushes the global economy into a “significant slowdown”, the IMF has warned with the highest economist of the Federal Reserve policy on interest rates.
In its latest world economic perspective, Fund threw nearly a percentage point from its prediction of its growth this year and reduced its views on all other G7 nations, as well as major economies including China, India, Brazil and South Africa.
Places needed to “urgently solve” their trading tensions to avoid further damage to growth prospects, Fund said. “If it stands, this sudden increase in the fee and uncertainty of the companion will significantly slow global growth.”
Capitalies have slipped into the US and other major markets this month after investors accumulate with sharp increases in US trade barriers and insecurity about Trump’s other movement.
The sale resumed on Monday, holding the lowest dollar for fear that Trump will seek to remove US Federal Reserve Chairman Jay Powell from his post-threatening the Fed-President’s independence calls for immediate cuts.
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Pierre-Olivier Gourinchas, the main economist of the IMF, said the central forecast of the fund was that the US and global economies would avoid the recession this year after entering in 2025 with strong momentum. But the probability of a recession in the US had increased to nearly 40 percent, Gourinchas said, compared to 25 percent in its previous world economic perspective.
“The main risk to us is that there may be further escalation in trade tariffs and tensions,” he said in an interview. “There is also the risk of financial conditions that tighten far beyond than they have.”
Tariffs will also be fed with the highest inflation in the US, according to the IMF, at the prices of the set consumer to rise 3 percent this year, a full percentage point higher than expected.
Repeating the Fund’s argument that Central Bank independence is important to keep inflation under control, Gourinchas said the Fed was entitled to hold interest rates as it weighs tax impact. The IMF view assumes that there will be two decreases of the rate fed this year.
He added that additional trade barriers represented a shock of supply that could “materially affect” the prices of goods in the coming years.
“Fed is sitting at this point and saying,” okay, how will this play? “,” Said gourinchas. “And waiting and understanding things seems very appropriate.”
The view comes while economic policymakers from around the world gather in Washington for World IMF/Bank Spring meetings, which will prevail by the discussion of global trade conflicts.
The IMF has reduced its view of global growth by half points to 2.8 percent this year and cut its prediction for 2026 to 3 percent. This is a slowdown from the rate of 2024 by 3.3 percent, as the IMF warns of the “negative negative shock” of the growing trade barriers.
The forecast included announcements and countermeasures of US tariffs from other countries between February 1 and April 4-Trump to announce a 90-day pause for most so-called mutual tariffs while making them in China. Of the G20 countries, only Turkey, Argentina and Russia saw growth improvements.
Fund reduced its growth forecast for the US to 1.8 percent in 2025-down from its previous forecast of 2.7 percent and 1.7 percent in 2026. This still leaves the country as the fastest G7 growth economy this year and the next, but is strongly under the expansion of America in 2024.
“Intensifying risks in downside prevails in the perspective,” Fund said. “The wider financial instability may follow, including damage to the international monetary system.”
Growth in Germany is now expected to zero this year, with an expansion of only 0.9 percent to 2026, while the UK has set for 1.1 percent growth this year and 1.4 percent.
China is also set for a slowdown, with the IMF which predicts the expansion of 4 percent this year and another, compared to 5 percent in 2024.
The IMF described alternatives to its main “reference” scenario for the global economy.
But while such an alternative includes the 90-day pause for most of the so-called Trump’s so-called reciprocal fees, the fund concluded that, even if the tasks were endlessly delayed, it would not “materially” change the view presented in its reference forecast.
This is due to the size of the trade barriers that are now erected between the US and China – the two largest economies in the world.
The negative impact of the barriers would not be limited to the close term, the fund added. He expects tariffs to reduce competition and innovation in the longer term as they increase rental research, “weighing further in perspective”.
She added: “Growth prospects, however, can improve immediately if countries facilitate their current trade policy stance and create new trade agreements.”
