‘Premature’ to conclude that Trump’s tariffs haven’t hit the global economy, the IMF says

The International Monetary Fund (IMF) reported that the global impact of US tariffs has been less severe than initially projected, leading to slight upgrades in its global growth forecast to 3.2% for 2025 and US growth to 2.1% for 2026. This muted effect is attributed to reduced average tariff rates from trade deals, a lack of retaliatory tariffs, and businesses adapting supply chains. However, the IMF cautioned that trade tensions, exemplified by recent US-China escalations and threats of new tariffs, remain a significant risk, and the full economic consequences, including potential consumer cost pass-through, may still emerge over time.

Analysis

The International Monetary Fund (IMF) has slightly upgraded its global growth forecast to 3.2% for 2025 and US growth to 2.1% for 2026, noting that the global impact of US tariffs has been less severe than initially projected. This muted effect is attributed to a reduction in average US tariff rates to 10-20% due to trade deals and exemptions, a lack of widespread retaliatory tariffs, and businesses adapting supply chains by boosting imports and re-routing.

However, the IMF maintains a cautious outlook, emphasizing that global growth remains "decisively below the pre-pandemic average of 3.7%". Significant risks persist from escalating trade tensions, particularly the recent US-China dispute and threats of a 100% tariff on China over rare earths. The full economic consequences, including potential consumer cost pass-through and the longevity of current trade agreements, are still uncertain and may materialize over a longer timeframe.

Key Decisions for Investors

• Monitor trade policy developments closely, especially US-China relations and any new tariff announcements, as these could significantly alter supply chain dynamics and consumer costs.
• Evaluate portfolio exposure to sectors heavily reliant on global supply chains or those sensitive to import/export tariffs, considering potential re-routing costs or consumer price impacts.
• Consider the long-term implications of sustained trade tensions on global growth, which remains below pre-pandemic levels, and assess corporate resilience to potential future trade disruptions.