The International Monetary Fund has sharply lowered its U.S. growth forecast for 2025 to 1.8%, down from 2.7% in January, citing mounting trade tensions and the economic fallout from President Donald Trump's new round of tariffs. The revised projection, released Tuesday in the IMF's April 2025 World Economic Outlook, comes amid rising concerns about inflation and policy uncertainty across global markets.

The IMF's downgrade followed Trump's April 2 announcement of so-called "reciprocal tariffs," which targeted key trading partners and triggered retaliatory measures. "This on its own is a major negative shock to growth," the IMF stated in its report, adding that the measures forced it to rewrite its global forecast on short notice.

Chief economist Pierre-Olivier Gourinchas said during a press briefing that the U.S. recession risk now stands at 40%, up from 25% in October 2024. "The common denominator... is that tariffs are a negative supply shock for the economy imposing them," he wrote in the report. The U.S. was the most downgraded advanced economy in the IMF's latest outlook.

The global economy is now projected to grow by 2.8% in 2025, down from the previous estimate of 3.3%. U.S. inflation was also revised up by one full percentage point from January, pushing the headline rate to 3%. The IMF attributed the increase to persistent service-sector inflation, stronger core goods prices, and the supply impact of the recent tariffs.

The S&P 500 has fallen 9% since the tariff announcement, reflecting investor concern over slowing demand and prolonged trade disruptions. "Risks to the global economy have increased, and worsening trade tensions could further depress growth," Gourinchas warned in an accompanying blog post.

While the IMF noted that the 90-day pause on additional tariffs and the partial exemption for smartphones could offer limited relief, it emphasized that the damage from the April measures had already been done. "The April 2 Rose Garden announcement forced us to jettison our projections-nearly finalized at that point-and compress a production cycle that usually takes more than two months into less than 10 days," Gourinchas wrote.

Advanced economies as a whole are now expected to see higher inflation in 2025, with the IMF revising its forecast for the group to 2.5%, up 0.4 percentage point from January. The inflationary impact was partially offset by downward revisions in certain emerging and developing markets.

Gourinchas cautioned that the tariffs' long-term effects on inflation and currency markets remain uncertain. "The effect of tariffs on exchange rates is not straightforward," he said. "In the medium term, the dollar may depreciate in real terms if tariffs translate into lower productivity in the U.S. tradables sector."

China's growth forecast was also reduced by 0.6 percentage point to 4%, though the IMF expects government stimulus to cushion the blow. Canada's outlook dropped to 1.4%, down 0.6 percentage point, while Mexico faces a deeper recession than previously expected.