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execsum

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abebemengesha65
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EXECUTIVE SUMMARY

Following an unprecedented series of shocks


Figure ES.1. US Effective Tariff Rates on All Imports
in the preceding years, global growth was stable (Percent)
yet underwhelming through 2024 and was 60 Tariff of Abominations (1828)
projected to remain so in the January 2025
World Economic Outlook (WEO) Update. 50
Morrill tariff (1861)
However, the landscape has changed as
40
governments around the world reorder policy
priorities. Since the release of the January 2025 30 April 9 tariffs
Smoot-Hawley
WEO Update, a series of new tariff measures by (1930) April 2 tariffs
20
the United States and countermeasures by its
trading partners have been announced and 10 Jan.20–Apr.1
2025 tariffs
implemented, ending up in near-universal US GATT (1947)
0
tariffs on April 2 and bringing effective tariff 1821 41 61 81 1901 21 41 61 81 2001 25
rates to levels not seen in a century (Figure
Sources: US Bureau of the Census, Historical Statistics of the United States, 1789–
ES.1). This on its own is a major negative 1945; and IMF staff calculations.
Note: The Jan.20–Apr.1 tariffs in 2025 include 20 percent tariffs on China; 25
shock to growth. The unpredictability with percent tariffs on steel and aluminum; 25 percent tariffs on Mexico and Canada;
which these measures have been unfolding also and a 10 percent tariff on Canadian energy imports. A United States–Mexico–
Canada Agreement (USMCA) carve-out is assumed to halve the effective tariff
has a negative impact on economic activity and increase for Canada and Mexico. The April 2 tariffs include auto sector tariffs and
country-specific tariffs, applying exemptions provided in Annex II of the Executive
the outlook and, at the same time, makes it Order per IMF staff judgment. The April 9 tariffs include an increase in the tariffs on
more difficult than usual to make assumptions China to 145 percent and a reduction in other country-specific tariffs to 10 percent.
It also includes exemptions on some electronic products announced on April 11.
that would constitute a basis for an internally GATT = General Agreement on Tariffs and Trade.
consistent and timely set of projections.
Given the complexity and fluidity of the current moment, this report presents a “reference
forecast” based on information available as of April 4, 2025 (including the April 2 tariffs and
initial responses), in lieu of the usual baseline. This is complemented with a range of global
growth forecasts, primarily under different trade policy assumptions.
The swift escalation of trade tensions and extremely high levels of policy uncertainty are
expected to have a significant impact on global economic activity. Under the reference forecast
that incorporates information as of April 4, global growth is projected to drop to 2.8 percent in
2025 and 3 percent in 2026—down from 3.3 percent for both years in the January 2025 WEO
Update, corresponding to a cumulative downgrade of 0.8 percentage point, and much below the
historical (2000–19) average of 3.7 percent.
In the reference forecast, growth in advanced economies is projected to be 1.4 percent in 2025.
Growth in the United States is expected to slow to 1.8 percent, a pace that is 0.9 percentage
point lower relative to the projection in the January 2025 WEO Update, on account of greater
policy uncertainty, trade tensions, and softer demand momentum, whereas growth in the euro
area at 0.8 percent is expected to slow by 0.2 percentage point. In emerging market and
developing economies, growth is expected to slow down to 3.7 percent in 2025 and 3.9 percent
in 2026, with significant downgrades for countries affected most by recent trade measures, such

Version date: April 20, 2025, 5:40 p.m.


WORLD ECONOMIC OUTLOOK

as China. Global headline inflation is expected to decline at a pace that is slightly slower than
what was expected in January, reaching 4.3 percent in 2025 and 3.6 percent in 2026, with notable
upward revisions for advanced economies and slight downward revisions for emerging market
and developing economies in 2025.
Intensifying downside risks dominate the outlook. Ratcheting up a trade war, along with even
more elevated trade policy uncertainty, could further reduce near- and long-term growth, while
eroded policy buffers weaken resilience to future shocks. Divergent and rapidly shifting policy
stances or deteriorating sentiment could trigger additional repricing of assets beyond what took
place after the announcement of sweeping US tariffs on April 2 and sharp adjustments in foreign
exchange rates and capital flows, especially for economies already facing debt distress. Broader
financial instability may ensue, including damage to the international monetary system.
Demographic shifts and a shrinking foreign labor force may curb potential growth and threaten
fiscal sustainability. The lingering effects of the recent cost-of-living crisis, coupled with depleted
policy space and dim medium-term growth prospects, could reignite social unrest. The resilience
shown by many large emerging market economies may be tested as servicing high debt levels
becomes more challenging in unfavorable global financial conditions. More limited international
development assistance may increase the pressure on low-income countries, pushing them
deeper into debt or necessitating significant fiscal adjustments, with immediate consequences for
growth and living standards. On the upside, a deescalation from current tariff rates and new
agreements providing clarity and stability in trade policies could lift global growth.
The path forward demands clarity and coordination. Countries should work constructively to
promote a stable and predictable trade environment, facilitate debt restructuring, and address
shared challenges. At the same time, they should address domestic policy and structural
imbalances, thereby ensuring their internal economic stability. This will help rebalance growth-
inflation trade-offs, rebuild buffers, and reinvigorate medium-term growth prospects, as well as
reduce global imbalances. The priority for central banks remains fine-tuning monetary policy
stances to achieve their mandates and ensure price and financial stability in an environment with
even more difficult trade-offs. Mitigating disruptive foreign exchange volatility may require
targeted interventions, as outlined in the IMF’s Integrated Policy Framework. Macroprudential
tools should be activated as needed to contain the buildup of vulnerabilities and to provide
support in case of stress events. Restoring fiscal space and putting public debt on a sustainable
path remain an important priority, while meeting critical spending needs to ensure national and
economic security. This requires credible medium-term fiscal consolidation plans. Structural
reforms in labor, product, and financial markets would complement efforts to reduce debt and
narrow cross-country disparities. As Chapter 2 explains, countries’ age structures are evolving at
different rates, with important consequences for medium-term growth and external imbalances.
In addition, as Chapter 3 documents, migration policy shifts in destination countries have sizable
spillover effects, disproportionately affecting emerging market and developing economies.

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