IMF cuts global growth forecast over Trump tariffs

IMF cuts global growth forecast over Trump tariffs

Following the plethora of tariffs and counter tariffs the International Monetary Fund (IMF) has reviewed downwards its growth forecast for world’s economy in 2025.

Yesterday, it pegged Nigeria’s economic growth in 2025 at three per cent, lower than the 3.2 per cent it announced in the October 2024 outlook.

It projected that global economic growth will dip to 2.8 per cent this year and three per cent in 2026.

Both forecasts were released in the World Economic Outlook (WEO) report presented at the ongoing IMF/World Bank Spring meetings in Washington, DC.

Minister of Finance and Coordinating Minister of the Economy, Olawale Edun, said he expected the IMF to continue providing support.

He said: “Bretton Wood institutions stand ready to provide a safety net and development finance at this time of heightened global uncertainty.”

According to the IMF, since the release of the January 2025 WEO update, a series of new tariff measures by the United States (US) and countermeasures by its trading partners have been announced and implemented.

This, the fund noted, ended up in “near-universal” US tariffs on April 2, bringing effective tariff rates to levels not seen in a century.

“This on its own is a major negative shock to growth,” the IMF report said.

Chief Economist and Director of Research Department at the IMF, Pierre-Olivier Gourinchas, said the global economy is entering a new era as the global economic system that has operated for the last 80 years is being reset.

According to him, the drop in oil prices is coming mostly from weaker global demand.

Gourinchas said: “There’s been some increase in supply coming from OPEC plus countries, but broadly speaking, the decline is mostly coming from weaker demand.

”So, that is going to play out in ways we’d expect: the commodity exporters are going to face lower export revenues from the decline in oil prices.”

He said this would weigh on their fiscal outlook and their growth.

The IMF said the unpredictability with which the measures have been unfolding also hurts economic activity and the outlook, making it more difficult to make assumptions “that would constitute a basis for an internally consistent and timely set of projections”

 It stated: “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 per cent in 2025 and 3 per cent in 2026—down from 3.3 per cent 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 per cent.”

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IMF cut its forecast for global growth by 0.5 percentage points to 2.8 per cent for 2025, and by 0.3 percentage points to three per cent from its January forecast that growth would reach 3.3 per cent in both years.

The Fund projected inflation to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3 per cent in 2025 and 3.6 per cent in 2026.

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.

According to Gourinchas, medium-term growth prospects remained mediocre, with the five-year forecast stuck at 3.2 per cent, below the historical average of 3.7 per cent from 2000-2019, with no relief in sight absent significant structural reforms.

The IMF slashed its forecast for growth in global trade by 1.5 percentage points to 1.7 per cent, half the growth seen in 2024, reflecting the accelerating fragmentation of the global economy.

Speaking during the release of the Financial Stability Report, Assistant Director, Monetary and Capital Markets Department, IMF, Jason Wu, asked Nigeria to be vigilant and ensure that the commodity prices drop does not negatively impact its revenue.

He also commended the Central Bank of Nigeria (CBN) and economic reforms’ impact on growth, exchange rate stability and dip in the inflation rate.

“In the case of Nigeria, macroeconomics have held up, Gross Domestic Product (GDP) growth has been fairly consistent, and inflation has been coming down, and earlier this year, we have seen Nigerian sovereign credit spreads lowering.

“I think the reforms that authorities have done, including the liberalisation of exchange rates, have helped in that regard,” he said.

Wu noted that during a time when global financial markets are volatile and risk appetite is wavering, this is when increases in sovereign spreads that will challenge the external picture for Nigeria, as well as other frontier economies, will be seen.

He said: “If trade tensions are going to lead to lower global demand for commodities, this will obviously weigh on the revenue that it will receive.

“So, I think both of those developments would counsel that authorities remain quite vigilant to these developments and take appropriate policies to counter.”

IMF Director of the Monetary and Capital Markets Department, Adrian Tobias, advised central banks to be independent, to promote financial sector stability.

“Helping central banks in terms of governance and monetary policy frameworks is one of the core missions of the IMF.

“We have seen time and time again that central bank interdependence is an important foundation for central banks to achieve their goals, which are primarily price stability and financial stability,” he said.