The International Monetary Fund expects economic growth rates to drop and inflation to rise due to the developing global trade war kicked off by President Trump’s tariffs.

The IMF warns that global economic uncertainty has increased to new highs due to the tariffs and an expected slowdown in inflation declines.

“We are entering a new era,” the chief economist at the IMF, Pierre-Olivier Gourinchas, said. “This global economic system that has operated for the last eighty years is being reset.”

The World Economic Outlook released on Tuesday states that “intensifying downside risks dominate the outlook, amid escalating trade tensions and financial market adjustments.”

The agency doesn’t expect a recession for the United States but it increased the odds of one to 37 percent in the new outlook from 25 percent in January.

The IMF also warns that scaling back international cooperation could jeopardize the global economy. It is urging countries to work to promote a stable and predictable trade environment.

“The global economy is at a critical juncture, with significant internal and external imbalances and vulnerabilities,” IMF executive board chairwoman Kristalina Georgieva said.

The IMF reduced its global growth forecast to 2.8 percent for 2025 and 3 percent for 2026, down about 0.8 percent from its January update. It sees economic growth in the United States and Communist China, the world’s largest economies, dropping sharply.

The report lowered the growth estimate for America this year down to 1.8 percent in the new report from 2.7 percent in January. About half of that drop is due to tariffs. It raised the forecast for American inflation up a full percent, to 3 percent from 2 percent, for the year.

China’s growth is expected to slow to 4 percent this year, a 0.6 percentage point reduction from its previous forecast.

The European Union is forecast to also grow more slowly but tariffs are not expected to bite as hard because it faces lower tariffs than China. The union could also see stronger government spending, especially as its members increase military spending.

The report says banks remain well-funded but cautions that severe market turmoil could intensify as the effects of tariffs currently on pause go into effect.
The IMF says the good news is that growth prospects could immediately improve if countries reach new trade agreements and ease their trade policy stances.