“This (the new tariff measure of the United States through trading partners) itself is a major negative impact on (global) growth,” it said in its latest edition of World Economic Outlook.
According to the outlook, India’s growth prospects for 2025 remain “relatively stable”, inspired by private consumption, especially in rural areas. However, this projection is below the RBI of 6.5% in FY26.
The IMF’s growth forecast for fiscal 27 has also dropped from 6.5% to 6.3%. India’s inflation rate is expected to drop to 4.2% in fiscal 26 and to 4.1% in fiscal 27. Trump announced a U.S. reciprocity tariff plan on April 2, imposing a 26% tax on imports from India. He then announced a 90-day pause until July 9, despite the new 10% baseline tariffs.
Tariff turmoil
In a context characterized by global differences and trade conflicts, the IMF predicts tariffs can reduce world GDP by 0.6% in 2027, while tariffs may reduce world GDP by 0.6% in the long run. The IMF’s global GDP growth rate in 2025 was 2.8%, lower than the early forecast of 3.3%.
“The rapid escalation of trade tensions and extremely high policy uncertainty is expected to have a significant impact on global economic activity,” it said.
It noted that the announced and implemented tariff measures and countermeasures raised effective tariff rates to levels not seen in a century. The International Monetary Fund said that if it weren’t for Trump’s April 2 announcement, global growth would have been fixed at 3.2% in 2025 and 2026, down 0.1 percentage point.
China’s GDP growth forecast for 2025 has dropped from 4.6% to 4%. For the United States, growth is expected to slow to 1.8% in the 2.7% forecast updated by WEO in January 2025.
The IMF pointed out that countries directly affected by new tariffs, especially China and the United States, will be the most affected countries. However, Asia and Europe will also feel the impact in the medium term.
“Some countries may take advantage of the opportunity to consolidate their trade networks and reconfigure their position in the global value chain, thus having a positive impact, especially if the transactional goods are embedded with an increased share of domestic value,” it said.
The IMF also noted that the impact of tariffs on inflation across the country will depend on whether the tariffs are permanent or temporary, how companies adjust profit margins to offset the increase in import costs, and whether they are invoiced in US dollars or local currencies.
The IMF mentioned that the rapidly changing policy stance could lead to further asset repositioning, beyond the shift observed after the US tariffs on April 2, as well as sharp fluctuations in exchange rates and capital flows, especially in economies already struggling with debt.
Policy Prescription
“Our policy recommendations call for prudence and improved cooperation,” said Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund.
He said the top priority should be to restore a clear, stable and predictable trade environment. Monetary policy must remain agile; he added that rebuilding fiscal buffers is crucial and structural reforms are still needed.
