Global growth slows due to policy tensions, says IMF

Source: The post Global growth slows due to policy tensions, says IMF has been created, based on the article “IMF outlook: The good, the bad and the unsaid” published in “Live Mint” on 24 April 2025. Global growth slows due to policy tensions, says IMF.

UPSC Syllabus Topic: GS Paper3- Economy-growth, development and employment.

Context: The IMF’s April 2025 World Economic Outlook presents mixed signals. While fears of a global recession are unfounded, global growth is slowing due to rising trade tensions and policy uncertainties. This slowdown is self-inflicted and not due to any natural or pandemic-like disruption.

Global Economic Outlook

1. Slower Growth but No Recession: The global economy is slowing but not shrinking. Growth is projected at 2.8% in 2025, down 0.5 points from the January forecast. For 2026, growth is expected to be 3%, 0.3 points lower than earlier estimates. This slowdown doesn’t meet the recession definition of two straight quarters of negative growth.
2. Trade Growth Declines More Sharply: Trade, though initially resilient, is weakening. Global trade growth is expected to fall to 1.7% in 2025, a major downward revision. Businesses had rerouted flows effectively, but the IMF warns this may no longer be enough.

Diverging Country Impacts

1. India Holds Steady: India’s economy is forecast to grow at 6.2%, only 0.3 points lower than January’s prediction. This remains close to the RBI’s estimate of 6.5%, showing relative strength amid global uncertainty.
2. Sharp Cut for the United States: The US faces the largest downgrade. Growth is now projected at 1.8%, nearly one full point below earlier estimates. This includes a 0.4-point hit from new tariffs. Demand was already weakening before the tariff announcements, and rising policy uncertainty added to the decline.

Trade Policy and Global Risks

1. Tariffs Fuel the Downturn: The US has raised its effective tariff rate to levels above those seen in the Great Depression. Retaliatory tariffs from major economies are raising global trade barriers and hurting confidence.
2. Uncertain Future for Global System: The IMF warns of a reset in the global economic order shaped over 80 years. Growth now hinges on how nations tackle tensions and embrace reform.

Key Takeaway

This slowdown is not caused by external shocks, but by policy choices, mainly from the US. The IMF hints that the turmoil is man-made, and that the consequences—especially for the US—may soon become visible.

Question for practice:

Examine how policy choices, especially by the United States, have contributed to the global economic slowdown as highlighted in the IMF’s April 2025 World Economic Outlook.