The risk of a recession in the US is on the rise, according to the International Monetary Fund (IMF). President Donald Trump’s trade war is pushing the global economy towards a significant slowdown, the IMF warned in its latest World Economic Outlook. The IMF cut nearly a percentage point off its growth forecast for the US this year and downgraded its outlook for all other G7 nations, as well as major economies like China, India, Brazil, and South Africa.
The IMF emphasized the urgent need for countries to resolve their trade tensions to avoid further damage to growth prospects. The abrupt increase in tariffs and the uncertainty surrounding them could significantly slow global growth if sustained. The Global Financial Stability Report also highlighted increased risks to markets since the White House’s tariff shift, with a sell-off in equities and US government debt contributing to a tightening of financial conditions.
IMF’s chief economist, Pierre-Olivier Gourinchas, stated that the central forecast is that the US and global economies will avoid a recession this year. However, the probability of a recession in the US has increased to nearly 40%, up from 25% in the previous World Economic Outlook. Gourinchas emphasized the importance of resolving trade tensions to avoid further escalation in tariffs and trade tensions.
The IMF’s outlook includes higher inflation in the US as a result of tariffs, with consumer prices expected to grow by 3% this year, one percentage point higher than expected. Gourinchas reiterated the importance of central bank independence in keeping inflation in check, supporting the Federal Reserve’s decision to hold interest rates steady as it assesses the impact of tariffs.
The IMF’s forecast for global growth has been revised down to 2.8% for this year and 3% for 2026, reflecting a slowdown from 2024. The fund warned of a major negative shock from rising trade barriers, with only a few countries seeing growth upgrades among the G20 nations. The US remains the fastest-growing G7 economy, but with lower growth expectations.
The IMF highlighted the importance of easing current trade policies and forging new trade agreements to improve growth prospects. The negative impact of trade barriers could hinder competition and innovation in the long term, weighing on the global economic outlook. Policymakers are urged to address trade tensions to avoid further escalation and mitigate the risks of a global recession.
