The International Monetary Fund (IMF) says tariffs from US President Donald Trump are increasing the risk of global financial stability.
The warning was part of the IMF’s global financial stability report released Tuesday to help world financial leaders meet in Washington to discuss the uncertainty posed by tariff policy.
The IMF pointed out that Trump’s tariff rates had skyrocketed in past levels during the Great Repression. This led to a recession in which tariffs rose 60% in one of the worst economic periods in modern history, resulting in a recession in which more than 12 million Americans lost their jobs.
Global Ripple Effect
The Global Ripple Effect was spotlighted in an IMF report. “The risks of global financial stability are increasing significantly, driven by a more severe global financial situation and increased economic uncertainty,” the IMF said.
The fund predicts a recession in US economic growth at 1.8% per year. This has fallen at a perfect rate since this period last year, from a low price of 2.7% from previous forecasts.
China is also expected to grow more slowly due to US tariffs, additional tariffs on products including drugs, and Beijing’s mutual tariffs on US goods. The IMF is expected to expand by 4% in 2025, a decline of more than half a point from previous forecasts.
In Europe, the IMF predicts that the 20-country eurozone will grow by 0.8% this year and will increase by 1.2% in 2026. The new report is down 0.2% from the forecast for the beginning of the year.
The IMF also forecasts a yearly decline in Mexico, with growth rates falling by 0.3% in 2025. However, it is expected to recover next year with a growth of 1.4%. Throughout Latin America and the Caribbean, organizations of 191 member states expect growth to decline by 1.4% from their 2024 forecast, but expect growth to bounce back in 2026.
“I can’t remember another example of my professional life where a single act by the president or prime minister led to such a sudden downgrade of growth in weeks,” Stuart McIntosh, executive director of the 30-year-old financial think tank group, told Al Jazeera.
The bond market recently surged in the US earlier this month after Trump’s tariffs came into effect. As a result, interest rates have risen in other countries around the world, making borrowing more expensive in other countries as well.
“An emerging market economy that is already facing the highest actual funding costs in a decade may need to refinance debt and fund fiscal spending at a higher cost,” the IMF said.
The IMF also said other geopolitical risks, such as military conflicts, could further promote uncertainty.
Economist Consensus
The concerns reflect the concerns of other prominent economists around the world who are hoping for a recession. Goldman Sachs predicts “the US growth rate is very low at 0.5%,” and said the chances of a recession next year are 45%, according to an investment bank’s “Tax-induced Recession Risk” report released Monday.
A survey of macroeconomic forecasts conducted earlier this month by the National Association of Business Economics showed that over half of respondents believe the 2025 recession could reach 49%. JPMorgan economists now believe there is a 60% chance of a recession.
“The chances of a global recession are increasing, and the chances of a US recession are increasing. It’s going up. We have to deal with it. It’s changed dramatically when we think about the consensus position of US economists,” added McIntosh.
“Last fall, the majority of US business economists thought there would be no recession this year. In fact, most consensus positions saw the US economy as the strongest economy in the world, and it could only improve. Unfortunately, after the “liberation day,” they got worse. ”
The US Federal Reserve also predicts growth will fall to 1.7% this year. This comes when the president calls for the central bank to cut interest rates. Last week, Trump said Powell’s exit wouldn’t be coming soon, and insisted that if he asked Powell to leave the role, he would. Powell has continually said he will provide the remainder of his term, ending in May 2026.
IMF chief economist Pierre-Olivier Gourinchas has pushed back the rise in rhetorical attacks on Powell to a group of reporters, saying “central bank independence remains a cornerstone.”