IMF does not predict global recession - But trade tensions will reflect economic decline
Rising trade tensions and fundamental changes to the global trading system will cause downward revisions to the International Monetary Fund's economic forecasts, but a global recession is not expected, IMF chief Kristalina Georgieva said.
She added that countries' economies were being tested by a shift in the global trading system, triggered in recent months by US tariffs and retaliation from China and the European Union. These factors have fueled uncertainty in trade policy and extreme volatility in financial markets.
"Disruptions come at a cost... our new growth forecasts will include a significant slowdown, but not a recession," she said in a speech ahead of the IMF and World Bank spring meetings in Washington next week.
Trump's tariffs and turmoil in financial markets are expected to dominate the spring meetings, which bring together central bankers and finance ministers from around the world.
High uncertainty also increased the risk of financial market stress, Georgieva said, noting that recent moves in U.S. Treasury yields should be taken as a warning. "Everyone suffers if financial conditions deteriorate," she stressed.
Georgieva said the world's real economy is performing well, with a strong labor market and a stable financial system, but warned that increasingly negative perceptions and concerns about recession could also affect economic activity.
In January, the IMF forecast global growth of 3.3% in 2025 and 3.3% in 2026. The fund will release an updated World Economic Outlook on Tuesday.
Georgewa did not provide details about the expected revisions, but warned that prolonged uncertainty would be costly and said the consequences of the trade resumption would be "significant."
The IMF does not expect a big change in either direction for inflation overall, as tariffs could raise consumer and producer prices, or could cause people to hold back on spending, which could actually lower inflation. But the IMF's updated projections would show higher inflation for some countries, Georgewa said.
Economists expect the US's aggressive tariff policy to cause a significant slowdown in the US economy this year and next, with the probability of a recession next year rising to 45%, the highest since December 2023.
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