IMF says global economy can avoid recession despite Trump’s new tariffs

IMF expects lower global growth due to Trump’s tariff plan but sees no looming recession.

IMF Managing Director Kristalina Georgieva delivers a keynote speech ahead of the IMF and World Bank Spring Meetings at IMF headquarters in Washington, DC, on April 17, 2025. Photo by Jim Watson/AFP

By Anna Fadiah and Hayu Andini

The global economy is likely to avoid a recession despite the growth shock caused by Trump’s new tariffs, the International Monetary Fund (IMF) said Thursday. Speaking from Washington ahead of next week's Spring Meetings, IMF Managing Director Kristalina Georgieva acknowledged that the sudden imposition of tariffs by U.S. President Donald Trump has triggered renewed market volatility and uncertainty, similar to the chaos seen during the Covid-19 pandemic.

Despite the turbulence, Georgieva stressed that while the IMF sees “notable markdowns” to global growth forecasts, a recession is not on the horizon. In a world increasingly shaped by abrupt policy shifts, she urged policymakers to remain vigilant and strategic.

“This is a reminder that we live in a world of sudden and sweeping shifts,” Georgieva said, referring to the volatility caused by Trump’s new tariffs. “And it is a call to respond wisely.”

Uncertainty and disruption from Trump’s tariff rollout

The stop-start nature of Trump’s tariff announcements, which have targeted imports from China, Mexico, and Canada, has rattled markets worldwide. While economists broadly agree that these import levies may offer short-term revenue gains, most expect them to choke off growth and fuel inflation in both developed and emerging economies.

Georgieva identified three key consequences of the ongoing trade disruptions. First and foremost is the high cost of uncertainty. With businesses unsure of the future price of materials and goods, long-term planning becomes fraught with risk.

“Uncertainty is costly,” she emphasized. “It becomes difficult for businesses to make informed decisions when they don’t know how much their inputs will cost next month.”

Secondly, the IMF chief said the immediate impact of rising trade barriers is a direct hit to growth. “Tariffs, like all taxes, raise revenue at the expense of reducing and shifting economic activity,” she noted. This economic distortion, she argued, is especially severe for small and medium-sized economies that rely heavily on trade.

Lastly, she warned of the long-term consequences of protectionism, which she said erodes productivity, particularly in smaller markets. In the IMF’s view, prolonged protectionist policies may lead to lower output, reduced innovation, and declining economic dynamism over time.

IMF to revise global growth forecasts

Georgieva’s remarks suggest that the IMF will revise down its growth forecasts in its upcoming World Economic Outlook report, expected Tuesday. The Fund had previously projected global growth to hit 3.3 percent in 2025 and 2026. That figure now appears too optimistic in light of recent trade tensions.

Although recession risks remain low, the Fund will likely lower its estimates for both advanced and emerging economies. Smaller countries and trade-dependent nations are expected to feel the brunt of the shock, while even economic powerhouses like China and the United States face policy challenges in mitigating the damage from the tariff war.

Targeted reforms needed, says IMF

In response to the shifting economic landscape under Trump’s new tariffs, Georgieva urged individual countries to adopt targeted reforms to safeguard stability. She emphasized the importance of credible monetary policy, responsible fiscal planning, and structural reforms that can enhance resilience.

For the United States, that means addressing ballooning government debt. “The U.S. must work to put rapidly rising government debt on a declining path,” she said. With interest payments rising and budget deficits widening, the IMF sees fiscal discipline as critical to maintaining long-term stability.

For China, the IMF’s advice is to shift its economic model away from state-led exports toward stronger domestic consumption. “Chronic low private consumption must be addressed,” Georgieva said, noting that such a pivot is necessary to ensure sustainable growth.

The European Union, meanwhile, should focus on improving competitiveness by deepening its single market, which has the potential to boost innovation, attract investment, and enhance labor mobility across member states.

A global approach to rising protectionism

Georgieva, who leads an institution traditionally aligned with principles of open markets and free trade, emphasized the need for multilateral cooperation to reduce global tensions. The IMF is particularly concerned that unilateral measures, such as Trump’s new tariffs, could spiral into a broader trade war that would benefit no one.

“In trade policy, the goal must be to secure a settlement among the largest players that preserves openness and delivers a more level playing field,” she said.

The IMF’s vision includes not only lower tariffs but also the removal of non-tariff barriers and economic distortions that prevent fair competition. Achieving such a balance, Georgieva stressed, would require “a more resilient world economy, not a drift to division.”

Time to act before the damage deepens

While the IMF is not forecasting a full-blown recession, Georgieva made clear that the global economy is at a critical juncture. Governments must act with urgency, transparency, and coordination. The era of fragmented policymaking—especially in trade—risks doing long-term harm if not corrected.

Policies must also allow businesses and households time to adapt. Abrupt changes, such as Trump’s new tariffs, can upend financial planning, trigger layoffs, and reduce consumer spending. These effects are often most severe in vulnerable economies with limited safety nets.

“Policies must allow private agents time to adjust and deliver,” Georgieva said. In essence, she called for a soft landing—a transition from uncertainty to stability.

Will the world heed the warning?

The IMF's stance on Trump’s new tariffs is clear: while the world may not plunge into recession immediately, the costs of current trade tensions are already being felt. Slower growth, higher prices, and weaker productivity are symptoms of a global economy in flux.

As world leaders gather in Washington for the Spring Meetings, the challenge is now political as much as it is economic. Will major economies choose cooperation over conflict? Can institutions like the IMF restore trust in global trade rules?

The answers may not come quickly. But as Georgieva warned, the longer the uncertainty lasts, the harder it will be to prevent deeper damage.

In the meantime, the world watches—and waits.