IMF slashes 2025 U.S. growth forecast to 1.8% from 2.7%, citing trade tensions

Tariffs are posing major headwinds for the U.S. and global economies, leading the International Monetary Fund to slash its 2025 growth forecast.

President Donald Trump's April 2 rollout of "reciprocal" tariffs has not only shaken stocks – the S&P 500 is down 9% since the levies were launched – but they also have set off countermeasures from other trading partners.

"This on its own is a major negative shock to growth," the IMF said in the executive summary of its April 2025 World Economic Outlook.

This new outlook includes a "reference forecast" for global economic growth and inflation, based on data available as of April 4 — including the reciprocal tariffs but excluding subsequent developments like the 90-day pause on higher rates and the exemption on smartphones — and updates the earlier outlook the IMF shared in January.

In its new projections, the IMF now calls for a U.S. growth outlook of 1.8% in 2025, down 0.9 percentage point from its January forecast.

In addition to trade policy pressures, the IMF's chief economist, Pierre-Olivier Gourinchas, added that the weakening consumer confidence and consumption indicators also factored in its downward revision.

While it is not yet calling for a recession in the U.S., Gourinchas told reporters Tuesday that the IMF now views recession odds at 40%, up from 25% in October 2024.

The IMF also cut back its global growth forecast to 2.8% in 2025, down 0.5 percentage point from its previous estimate.

"The April 2 Rose Garden announcement forced us to jettison our projections — nearly finalized at that point — and compress a production cycle that usually takes more than two months into less than 10 days," Gourinchas wrote in the April report. 

"The common denominator ... is that tariffs are a negative supply shock for the economy imposing them," he said. 

Higher inflation forecasts for advanced economies

The IMF also revised its expectations for headline inflation for advanced economies, which include the U.S., the United Kingdom and Canada, to 2.5% for 2025, reflecting an increase of 0.4 percentage point from January's projection.

The U.S. inflation outlook was also revised higher to 3%, up 1 percentage point from the initial projection in January.

"For the United States, this reflects stubborn price dynamics in the services sector as well as a recent uptick in the growth of the price of core goods (excluding food and energy) and the supply shock from recent tariffs," the IMF noted in its April report.

The increase in inflation for major economies was offset by downward revisions across certain emerging markets and developing economies. 

The extent to which the levies pressure central banks' efforts to lower inflation is contingent "on whether the tariffs are perceived to be temporary or permanent," according to the IMF's report. 

Previous bouts of market volatility have led to the U.S. dollar strengthening relative to other countries, creating upward inflationary pressure in other countries. However, the dollar has reversed this trend amid the recent market sell-off. 

"The effect of tariffs on exchange rates is not straightforward," per Gourinchas. "In the medium term, the dollar may depreciate in real terms if tariffs translate into lower productivity in the US tradables sector, relative to its trading partners."

Get Your Ticket to Pro LIVE

Join us at the New York Stock Exchange!

Uncertain markets? Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange. In today's dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12.

Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You'll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!

• How Warren Buffett handled past market crises
• 'Big Short' investor Steve Eisman on tariff turmoil: Don't be a hero
• Highest tariffs since the '30s to trigger recession, S&P 500 decline to 4,200-4,500, says BCA Research
• One group of stocks is emerging as a bright spot in the tariff sell-off