The International Monetary Fund (IMF) has sounded a stark alarm, warning that the global economy is standing at a “critical juncture” as it enters a “new era” marked by escalating trade conflicts and mounting policy uncertainty.

In its latest World Economic Outlook, the IMF paints a grim portrait of a world economy beset by self-inflicted wounds, with growth forecasts slashed and the risk of a more severe downturn looming large.

IMF Chief Economist Pierre-Olivier Gourinchas unveiled the report with a grave assessment of the shifting global landscape.

 “The landscape has changed since our last World Economic Outlook update in January. We're entering a new era as the global economic system that has operated for the last eighty years is being reset. Since late January, many tariff announcements have been made, culminating on April 2 with near-universal levies from the United States and counter responses from some trading partners.”

The IMF notes that the U.S. effective tariff rate has soared to levels not seen in over a century, a development Gourinchas warns is having cascading effects on global economic stability.

“Beyond the abrupt increase in tariffs, the surge in policy uncertainty is a major driver of the economic outlook.”

The Fund’s primary forecast reflects the compounding impact of trade tensions, with global growth now projected at 2.8% for 2025, down from earlier forecasts.

Growth in 2026 is expected to reach just 3%, while the cumulative downgrade amounts to nearly a full percentage point compared to the January update.

“If sustained, an increase in trade tensions and uncertainty will slow global growth significantly,” Gourinchas explained.

 “Under these reference forecasts, global growth will reach 2.8% this year and 3% next year… Under an alternative path that excludes the April tariff announcements, global growth would have seen only a modest downgrade to 3.2%.”, he said.

While all regions are expected to feel the impact, the U.S. and China appear particularly vulnerable. Guglinesas outlined how tariffs are disrupting trade and productivity, with ripple effects cutting deeply into national and global output.

“These trade tensions will greatly impact global trade. We project that global trade growth will be more than cut in half from 3.8% last year to 1.7% this year. The tariffs will play out differently in different countries.”

 “For the United States, the tariffs represent a supply shock that reduces productivity and output permanently and increases price pressures temporarily.”

According to the IMF, U.S. economic growth has been revised down by 0.9 percentage points to 1.8%, with tariffs alone accounting for a 0.4-point reduction, while inflation expectations have been revised upward.

The broader picture, Guglinesas warned, is equally troubling. Pervasive uncertainty is chilling investment, slowing consumption, and forcing global financial institutions to re-evaluate risk exposure. Supply chains are once again under strain, drawing uncomfortable parallels to the pandemic-era disruptions.

“Risks to the global economy have increased and are firmly to the downside,” Guglinesas cautioned.

  “First, while we are not projecting a global downturn, the risk that it may happen this year has increased substantially from 17% projected back in October to 30% now.”

This nearly doubling of recession risk highlights the fragility of the current economic environment.

Guglinesas concluded with a clear warning: any further escalation of trade tensions could tip the already faltering global economy into a prolonged and painful downturn.

As world leaders gather for high-level meetings in the coming weeks, the IMF's message is unambiguous — restore stability, rebuild multilateral trust, and avoid further economic self-harm before it's too late.