The International Monetary Fund (IMF) on Tuesday raised its growth forecast for Türkiye while downgrading its outlook for the global economy, citing the impact of U.S. tariffs now at 100-year highs while warning that further trade tensions would slow expansion further.
The IMF released an update to its World Economic Outlook compiled in just 10 days after U.S. President Donald Trump announced universal tariffs on nearly all trading partners and higher rates – currently suspended – on many countries.
The fund said that the global economy will grow just 2.8% this year, down from its forecast in January of 3.3%, according to its latest World Economic Outlook. And in 2026, global growth will be 3%, the fund predicts, also below its previous 3.3% estimate.
It said inflation was expected to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3% in 2025 and 3.6% in 2026, with "notable" upward revisions for the U.S. and other advanced economies.
"We are entering a new era," Pierre-Olivier Gourinchas, chief economist at the IMF, said. "This global economic system that has operated for the last eighty years is being reset."
The IMF said the swift escalation of trade tensions and "extremely high levels" of uncertainty about future policies would have a significant impact on global economic activity.
"It's quite significant and it's hitting all the regions of the world. We're seeing lower growth in the U.S., lower growth in the euro area, lower growth in China, lower growth in other parts of the world," Gourinchas told Reuters in an interview.
"If we get an escalation of trade tensions between the U.S. and other countries, that will fuel additional uncertainty, that will create additional financial market volatility, that will tighten financial conditions," he said, adding the bundled effect would further lower global growth prospects.
Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.
"We are not seeing a stampede or a run to the exits," Gourinchas said. "We're not concerned at this stage about the resilience of the international monetary system. It would take something much bigger than this."
Gourinchas said that the heightened uncertainty around the import taxes led the IMF to take the unusual step of preparing several different scenarios for future growth. Its forecasts were finalized April 4, after the Trump administration announced sweeping tariffs on nearly 60 countries along with nearly-universal 10% duties.
Those duties were paused April 9 for 90 days. Gourinchas said the pause didn't substantially change the IMF's forecasts because the U.S. and China have imposed such steep tariffs on each other since then.
The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and to reduce global poverty.
For Türkiye, the fund sees the economy expanding 2.7% in 2025, up from a previous estimate of 2.6% in January. For 2026, the IMF maintained its growth projection at 3.2%.
The fund projects inflation in Türkiye to average 35.9% this year and decline to 22.8% in 2026. Annual inflation slowed to 38.1% in March. It marked the lowest since December 2022 and extended the fall from a peak of around 75% last May. The central bank's year-end inflation estimate currently stands at 24%.
The IMF said Türkiye's current account deficit is expected to remain at 1.2% of GDP in both 2025 and 2026.
The uncertainty surrounding the Trump administration's next moves will also likely weigh heavily on the U.S. and global economies, the IMF said. Companies may pull back on investment and expansion as they wait to see how the trade policies play out, which can slow growth.
The IMF downgraded its forecast for U.S. growth by 0.9 percentage point to 1.8% in 2025 – a full percentage point down from 2.8% growth in 2024 – and by 0.4 percentage point to 1.7% in 2026, citing policy uncertainty and trade tensions.
Gourinchas told reporters the IMF did not foresee a recession in the U.S., but the odds of a downturn had increased from about 25% to 37%. He said the IMF was now projecting U.S. headline inflation to reach 3% in 2025, one percentage point higher than it forecast in January, due to tariffs and underlying strength in services.
The forecasts are largely in line with many private-sector economists' expectations, though some do fear a recession is increasingly likely. Economists at JPMorgan say the chances of a U.S. recession are now 60%. The Federal Reserve (Fed) has also forecast that growth will weaken this year to 1.7%.
Updates to inflation forecast meant the Federal Reserve will have to be very vigilant in keeping inflation expectations anchored, Gourinchas said, noting that many Americans were still scarred by a spike in inflation during the COVID-19 pandemic.
Asked about the impact of any moves by the White House to remove Fed Chair Jerome Powell, Gourinchas said it was "absolutely critical" that central banks were able to remain independent to maintain their credibility in addressing inflation.
U.S. stocks suffered steep losses on Monday as the U.S. president ramped up his attacks on Powell, fueling concerns about the central bank's independence. Stocks opened higher on Tuesday.
U.S. neighbors Canada and Mexico, both targeted by a range of Trump's tariffs, also saw their growth forecasts cut.
The IMF forecast Canada's economy would grow by 1.4% in 2025 and 1.6% in 2026, instead of 2% growth projected for both years in January.
It also predicted Mexico would be hard hit by tariffs, with its growth dipping to a negative 0.3% in 2025, a sharp 1.7 percentage point drop from the January forecast, before recovering to 1.4% growth in 2026.
The IMF forecast growth in the euro area would slow to 0.8% in 2025 and 1.2% in 2026, with both forecasts about 0.2 percentage points down from January. It said Spain was an outlier, with a 2.5% growth forecast for 2025, a 0.2 percentage point upward revision, reflecting strong data.
Offsetting forces included stronger consumption due to rising wages and a projected fiscal easing in Germany after major changes to its "debt brake." The IMF cut its growth forecast for Germany by 0.3 percentage point to 0.0% in 2025, and by 0.2 percentage point to 0.9% in 2026.
Growth in Britain would hit 1.1% in 2025, 0.5 percentage point below the January forecast, edging higher to 1.4% in 2026, reflecting the impact of recent tariff announcements, higher gilt yields and weaker private consumption.
Trade tensions and tariffs are, on the other hand, expected to shave 0.5 percentage point off Japan's economic activity in 2025, compared to the January forecast, with growth projected at 0.6%.
China's growth forecast was cut to 4% for 2025 and 2026, reflecting respective downward revisions of 0.6 percentage point and 0.5 percentage point from the January forecast.
Gourinchas said the impact of the tariffs on China – hugely dependent on exports – was about 1.3 percentage point in 2025, but that was offset by stronger fiscal measures.
