IMF warns of global growth slowdown due to Trump tariffs as Australia braces for impact
Make us a preferred source
Make us a preferred source on Google
The news: The International Monetary Fund has sharply downgraded its expectations for global economic growth on the back of US tariffs.
The IMF's April 2025 World Economic Outlook noted that the high degree of economic and financial integration across the world, including in supply chains, meant that a potential unwinding “could constitute a major source of economic upheaval” unlike that seen in the previous century.
“For this reason, we expect that the sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term,” the IMF said.
The forecast for global trade growth has been revised down by 1.5 percentage points in 2025, with a small recovery expected in 2026.
“More immediately, there is a risk that trade retaliation may further ratchet up — instead of dialing down — trade tensions, with negative consequences for global growth. Financial conditions may further tighten — perhaps abruptly — if markets react negatively to diminished growth prospects and increased uncertainty,” the report said.
“Yet herein lies also an upside: If countries deescalate from their current tariff stance, and coordinate to deliver clarity and stability on trade policy, the outlook could immediately brighten.”
It called for “prudence, clarity, and increased collaboration”, asking nations to find mutually beneficial trade arrangements and for monetary policy to “remain ahead of the curve”. It also said to expect volatility in currency markets that should be allowed by countries to adjust provided the movements are driven by fundamental policy forces, which the IMF said is the case at the moment.
The IMF further encouraged governments to exercise fiscal restraint and for those with little spending room to “stay within their budgetary envelope” or face “dire consequences”. And it called for a focus on boosting productivity.
The numbers: Global growth is now projected to fall to 2.8% in 2025 and 3% in 2026, down from 3.3% for each year in the January report.
In Australia, real GDP growth is expected to reach 1.6% in 2025 and 1.4% in 2026. CPI is anticipated to fall to 2.5% in 2025, before rising to 3.5% in 2026. Unemployment is anticipated to rise to 4.3% this year and 4.5% in 2026.
The context: Economists have been warning about uncertainty in forecasts for months, and the IMF has made its own caveats very prominent in this report. While the global slowdown is its central scenario, it notes that “many possible paths exists”.
Even so, it said the “common denominator” in its forecasts is that the tariffs constitute a negative supply shock, resulting in a loss of aggregate productivity, lower activity and a medium-term reduction in competition and innovation and a rise in potential rent-seeking.
It also notes that the effect on exchange rates is “not straightforward”. The US may see its currency appreciate and tariffed counters may well ease monetary policy in response to supply shocks. But uncertainty and lower growth can weigh on the dollar.
What they said: Treasurer Jim Chalmers said the IMF outlook confirmed that "trade tensions are weighing heavily on the global outlook and putting upward pressure on inflation around the world".
"At a time of extreme global uncertainty our responsible approach to economic management has never been more important," he said in a statement.
"We’re not immune from the turmoil in the global economy but the progress we’ve made together puts us in good stead."
Chalmers used the report to attack the opposition, saying his political opponents would leave Australia "more vulnerable to global economic uncertainty".
The sources: IMF World Economic Outlook April 2025, Treasurer media comments
