IMF To Cut Growth Outlook As Tariffs Raise Economic Risks

The International Monetary Fund (IMF) will revise its global economic growth projections downward in response to rising trade tensions and sweeping changes in the global trading landscape, Managing Director Kristalina Georgieva announced Thursday.

While a global recession is not anticipated, the mounting volatility and uncertainty surrounding international trade are set to significantly dampen global growth prospects.

Speaking at the IMF’s headquarters in Washington ahead of the joint IMF–World Bank Spring Meetings, Georgieva highlighted the increasing risks posed by the recent escalation in trade conflicts, including U.S. tariffs and retaliatory measures from China and the European Union.

These developments, she said, have “sparked a reboot of the global trading system” and triggered “off-the-charts” levels of trade policy uncertainty, alongside extreme volatility in financial markets.

“Disruptions entail costs,” Georgieva told reporters. “Our new growth projections will include notable markdowns—but not recession.” She added that the updated economic outlook, to be released next Tuesday in the IMF’s World Economic Outlook report, will also reflect higher inflation projections for several countries.

The IMF had previously forecasted global economic growth at 3.3 per cent for both 2025 and 2026 according to Reuters.

However, Georgieva cautioned that the ongoing trade turmoil, particularly aggressive tariff actions by major economies, could significantly alter this trajectory.

Prolonged uncertainty, she warned, would come at a high price, both in terms of investor confidence and real economic performance.

Echoing the famous line from The Wizard of Oz, Georgieva remarked, “We’re not in Kansas anymore,” emphasizing the severity of the situation and the departure from a stable global trade environment.

Georgieva noted that recent fluctuations in the U.S. Treasury yield curve should be seen as a clear warning sign of potential financial stress. “Everyone suffers if financial conditions worsen,” she said, calling attention to the risk of tightening liquidity conditions, especially in emerging markets.

Trade tensions, which had been simmering for months, have now reached a boiling point, the IMF chief stated.

She urged policymakers to respond wisely to the “sudden and sweeping shifts” in trade policy, which have driven U.S. effective tariff rates to levels not seen in decades. In response, China and the EU have imposed their own countermeasures, creating ripple effects across the global economy.

“As the giants face off, smaller countries are caught in the crosscurrents,” Georgieva said. With the U.S., China, and the EU accounting for the lion’s share of global imports, their actions are having far-reaching consequences for low- and middle-income countries, many of which are heavily dependent on trade and vulnerable to financial market shifts.

She warned that tariffs hurt economic activity in the short term, with importers bearing the brunt through reduced profits and consumers facing higher prices.

Although protectionist measures might spur some domestic investment and job creation in large economies, Georgieva stressed that such effects take time to materialize and are often outweighed by the broader economic drag.

“Protectionism erodes productivity over the long run, especially in smaller economies,” she said. “Shielding industries from competition also weakens innovation and entrepreneurship.”

The IMF is encouraging countries to maintain robust financial sector regulation, agile and credible monetary policies, and ongoing structural reforms to bolster economic resilience.

Georgieva urged emerging markets to preserve exchange rate flexibility and called on donor countries to protect aid flows to vulnerable low-income nations, particularly in times of global stress.

Georgieva emphasized the need for renewed multilateral cooperation in an increasingly fragmented and multipolar world.

She called on major economies to seek a trade resolution that restores openness and rekindles progress toward lower tariffs and fewer non-tariff barriers.

“We need a more resilient world economy, not a drift to division,” she concluded. “All countries—large and small alike—must play their part to strengthen the global economy in this era of more frequent and severe shocks.”

IMF To Cut Growth Outlook As Tariffs Raise Economic Risks is first published on The Whistler Newspaper