The impact of President Trump’s tariffs is expected to weigh on economic growth worldwide in 2025, according to the International Monetary Fund’s new World Economic Outlook released Tuesday.
“The outlook for the global economy continues to point to dim prospects, both in the short and the long term,” according to the IMF report.
Global growth is projected to decelerate to 3.2% this year from 3.3% in 2024 and skid further to 3.1% in 2026.
That growth forecast, little changed from the IMF’s estimates in July, reflects gradual adaptation to trade tensions. Growth is expected to be much lower than the pre-pandemic average of 3.7%.
And the IMF predicts much of the bite from tariffs could be yet to come. While the impact on rewiring of supply chains and inflation has been muted so far, the IMF said that may reflect a delay in higher prices and costs being passed through.
Very little of what would be expected to pass through to consumer prices has actually done so thus far, according to the IMF’s examination of certain goods. Household appliances, for instance, have reflected the cost of tariffs, but many categories, including food and clothing, have not, according to the IMF.
And companies may not be able to absorb higher tariff costs, as the US dollar has weakened with the onset of tariffs.
The US economy is expected to slow more sharply this year than was projected a year ago, given policy uncertainty, higher trade barriers, and lower growth in both the labor force and employment due to reduced immigration.
US growth is projected to slow to 2% in 2025, lower than the 2.2% projected in October 2024.
Meanwhile, US inflation is expected to remain largely unchanged and elevated at 2.7%, compared with the notable decline projected in October 2024.
US inflation is expected to pick up in the second half of 2025, as the impact of tariffs is no longer absorbed within supply chains and is instead passed on to consumers. Inflation is not expected to return to the Federal Reserve’s 2% target until 2027.
As a result, the US is likely to face higher interest rates on average for the foreseeable future versus Europe and others.
Read more: How jobs, inflation, and the Fed are all related
Yet, the IMF expects the Federal Reserve to cut interest rates two more times this year, in line with Fed policymakers’ projections, given softer payroll growth. In the euro area, policy rates are expected to hold steady at 2%. Meanwhile, Japan is expected to see rate hikes.
“Core inflation has risen in the United States, and unemployment has edged up,” the IMF said in the report. “Inflation is stabilizing above central bank targets in several other countries, and inflation expectations are still fragile, worsening the trade-offs for monetary policymakers as uncertainty and tariffs start weighing on activity.”
The combination of a sharper slowdown in growth and stubborn inflation in the US contrasts with a less pronounced slowdown and muted inflation in China.
China’s economy is projected to grow by 4.8% this year and then drop to 4.2% next year, compared with 5% in 2024. The stronger outlook reflects front-loading in international trade and relatively strong consumer spending that offset headwinds from higher uncertainty and tariffs.
The forecast, however, came before Trump threatened massively higher tariffs of 100% on Chinese goods if the world’s largest manufacturer of rare-earth minerals continues to further restrict access to those minerals, in an effort to gain leverage as the US influences trade flows and global economies.
Higher tariffs and elevated uncertainty are expected to keep a lid on growth in the euro area, which is forecast to pick up modestly to 1.2% this year and 1.1% in 2026. That’s down 0.4% with the October 2024 pre-trade changes.
Read more: The latest news and updates on Trump’s tariffs
The longer-term issue that will dim long-term growth prospects for much of the world, according to the IMF, is a combination of aging populations, lower immigration flows, and subdued productivity.
In fact, global output is projected to expand at an average annual pace of 3.2% in 2027-2030, compared with the pre-pandemic historical average of 3.7.%
On average, roughly 15% of advanced economies’ populations are immigrants, according to the IMF. The global stock of international migrants is estimated to be 285 million as of 2022, with 168 million participating in the labor force, according to the IMF.
About a quarter of those international migrants in the labor force are in North America — primarily the US — and another quarter are in western Europe.
Net international migration flows plunged in the first half of 2025, and if current trends continue, the IMF said that could imply about 1 million-1.6 million fewer immigrants than in 2024 and 2.5 million fewer than in 2023.
In the US, new immigration policies could reduce GDP by 0.3% to 0.7% per year, according to research cited by the IMF.
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance