US President Donald Trump's tariffs have "significantly" pushed the global economy toward a downshift, reducing the global economic growth forecast for 2025 to 2.8%, the International Monetary Fund (IMF) said in a new report published on Tuesday. 

The global growth forecast was expected to stay at 3.1% in 2024 and rise to 3.3% in 2025, said IMF economic counsellor Pierre-Olivier Gourinchas.

The IMF's Global Financial Stability Report (GFSR) was "put together under exceptional circumstances," following Trump's announcement in April, Gourinchas said.

The US' especially high levies on China and Beijing's retaliatory measures mean lower bilateral trade, which is "weighing down on global trade growth," Gourinchas told the Reuters news agency.

How do the US tariffs affect the global economy?

The GFSR's authors found that "global financial stability risks have increased significantly, driven by tighter global financial conditions and heightened economic uncertainty."

The ripple effects of Trump's decisions extend beyond Washington. Rising bond yields have increased in countries previously considered safe choices, driving up borrowing costs globally, the IMF reported.

"Emerging market economies already facing the highest real financing costs in a decade may now need to refinance their debt and fund fiscal spending at higher costs," the global lender said.

The IMF also warned that global tensions, including wars and military conflicts, could make the financial system even more unstable. 

The IMF projects that growth would slow to 0.8% in the Euro area in 2025, and to 1.2% in 2026. Both projections are some 0.2 percentage points down from January. 

Germany was set to see economic growth of 0.0% in 2025 and 0.9% in 2026, the IMF said, cutting the European Union's largest economy's growth forecast by 0.3 and 0.2 percentage points, respectively.

Tariff, plus uncertainty provide double whammy

Petya Koeva Brooks, the deputy director of the research department at the IMF in Washington told DW that two negative shocks had hit the global economy.

One was the level of new tariffs, bringing the effective tariff rate to levels not seen for over a century. Then, she said, policy uncertainty that had also become very high.

"The combination of those two things have resulted in those downgrades that we've seen for most countries in the world," said Koeva Brooks.

The best way to deal with trade disruption was cooperation among willing countries to minimize the impact, she said.

"What would be very helpful at this point is to have a stable and predictable trading system. For countries to work together in order to achieve that would be the most beneficial thing for the global economy."

Mexico rejects IMF projections

IMF financial counselor Tobias Adrian warned that the financial conditions in the past three weeks since Trump first announced the tariffs has "an outsized impact on those more vulnerable countries."

The global lender expected less-developed nations to fare worse, projecting a shrinkage of Mexico's economy to 0.3% this year, down from a previous projection of 1.4% growth.

Mexico rejected this projection as too pessimistic.

"We do not know what it is based on. We do not agree," President Claudia Sheinbaum said. "We have a plan to strengthen the Mexican economy."

Mexico was among the first countries to be targeted by Trump's tariffs shortly after he took office. The IMF said its downgrade for the country reflected "weaker-than-expected activity in late 2024 and early 2025 as well as the impact of tariffs imposed by the United States, the associated uncertainty and geopolitical tensions, and a tightening of financing conditions."

Edited by: Rana Taha