The escalation of the trade war driven by the tariff increases under the Trump administration, beyond implying a profound change in the governance of international trade and sparking speculation about potential winners and losers, has triggered downward revisions in projections for global economic dynamism.

Uncertainty surrounding the erratic U.S. tariff policy, the reactions of its trading partners, and the varied impacts on private agents’ decisions complicate the construction of future scenarios. However, there is little doubt about the detrimental effects on global GDP and trade growth.

For this reason, the IMF presented three growth projections in its April 2025 World Economic Outlook. In its baseline scenario, detailed in this Letter, it accounted for tariff measures announced up to April 4 (reciprocal tariffs), projecting global GDP growth of +2.8% in 2025 and +3.0% in 2026. This represents a significant downward revision from the January 2025 scenario, which anticipated maintaining the 2024 growth rate (+3.3%) for the 2025–2026 biennium.

Considering a 90-day pause in reciprocal tariffs and escalating tensions with China until mid-April 2025, projections would be very close to the baseline scenario: +2.8% in 2025 and +2.9% in 2026, but with notable differences in composition. The U.S. and China would face more pronounced losses.

A similar downward revision was made by UNCTAD, which considered information up to April 10. In this case, the updated scenario resulted in a more pessimistic projection for 2025: +2.3% compared to the previously estimated +2.7%.

The WTO, based on measures adopted up to April 14, including the suspension of “reciprocal tariffs” by the U.S., reduced its global GDP growth projection for 2025 from +2.8% to +2.2% and for 2026 from +2.6% to +2.4%. It also warned that further increases in trade policy uncertainty could lead to losses twice as large in global GDP for 2025.

The OECD, in its early June 2025 scenario update, lowered its GDP projection for 2025 from +3.1% to +2.9%, largely due to sharp decelerations in the U.S. (from +2.8% in 2024 to +1.6% in 2025), Mexico (from +1.5% to +0.4%), and Canada (from +1.5% to +1.0%).

For global trade, the cuts in projections were even more pronounced. According to the IMF, the growth rate of international goods and services trade in 2025 is expected to halve due to multiplying tariff barriers, dropping from +3.2% in the January 2025 scenario to +1.7% in the April 2025 scenario. For 2026, a recovery to +2.5% is expected, about 0.8 percentage points below January 2025 expectations.

The WTO projected a contraction of -0.2% in global goods trade in 2025, followed by a recovery of +2.5% in 2026, implying cuts of -2.9 percentage points and -0.4 percentage point, respectively, compared to its late-2024 scenario. For services trade, despite a slowdown, much stronger dynamism is expected (+4.0% in 2025 and +4.1% in 2026).

In the OECD’s scenario, which includes more recent data, global trade dynamism was reduced from +3.6% to +2.8% in 2025 and from +3.5% to +2.2% in 2026, resuming a post-2008/2009 global crisis pattern where trade grows less than global GDP, contributing less as a driver of countries’ dynamism.

The IMF’s baseline scenario, addressed in this Letter for providing a broader set of country-specific data, relies on the following additional assumptions:

·         A 7.9% decline in energy commodity prices and a 4.4% increase in non-energy commodity prices in 2025.

·         Continued monetary policy easing in advanced economies (AEs).

·         Tighter fiscal policy in AEs in 2025 and 2026 (except in Germany); in emerging market and developing economies (EMDEs), primary deficits are expected to widen in 2025, but fiscal policy should become restrictive in 2026. In both groups, the public debt-to-GDP ratio will continue to rise.

·         Global consumer inflation slowing to +4.3% in 2025 and +3.6% in 2026, converging to a +2.2% target in AEs and declining to +4.6% in EMDEs in 2026.

In this scenario, deceleration is nearly universal across both AEs and EMDEs. Growth in AEs is expected to fall from +1.8% in 2024 to +1.4% in 2025 (-0.5 percentage point from the January 2025 projection) and +1.5% in 2026. This revision stems from significant cuts in projections for Canada, Japan, the United Kingdom, and the U.S., and an increase in the forecast for Spain.

For emerging and developing economies, the IMF forecasts an even sharper slowdown, from +4.3% in 2024 to +3.7% in 2025 (compared to +4.2% in January 2025), with a slight acceleration to +3.9% in 2026.

Latin America and the Caribbean are expected to see growth slow from +2.4% in 2024 to +2.0% in 2025 (-0.4 percentage point) compared to +2.5% in the IMF’s January 2025 scenario—the second-largest cut after Emerging and Developing Asia, and the Middle East and Central Asia (both -0.6 percentage point).

Adjustments in the Latin American scenario are primarily driven by a significant cut in Mexico’s expected GDP growth: the near-maintenance of the growth rate seen in the January 2025 scenario (from +1.5% in 2024 to +1.4% in 2025) was replaced by a contraction of -0.3% in the April 2025 scenario.

For Brazil, the adjustment between the IMF’s January and April 2025 scenarios was small: -0.2 percentage point for both 2025 and 2026. Thus, the IMF expects Brazil’s GDP growth to slow from +3.4% in 2024 to +2.0% in 2025 and remain at this level in 2026.

UNCTAD and the OECD maintained their projections for Brazil’s GDP in 2025 at +2.2% and +2.1%, respectively. For 2026, the OECD slightly raised its projection from +1.4% to +1.6%.

The reasons for this stability in Brazil’s projections include not being among the countries most affected by U.S. tariff hikes, having a relatively closed economy, and the potential to increase exports of primary goods, particularly agricultural products to China, should China impose restrictions on its imports from the U.S.

In the IMF’s scenario, after a more balanced risk assessment in October 2024 due to reduced negative risks compared to April of the same year (Letter IEDI 1288), the current baseline scenario again carries a negative bias due to the direct and indirect effects of the erratic tariff policy of the second Trump administration.

According to the report, the global economy is at a critical juncture, with significant uncertainties and policy changes. To restore confidence and boost growth, reducing trade tensions, maintaining economic stability, and rebuilding fiscal space are essential. In the medium term, progress in structural reforms and the responsible use of new technologies are crucial for enhancing productivity and economic resilience.

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