The world economy is expected to slow this year as a result of President Trump’s trade war. But fears of a damaging economic slowdown have been tempered as the Trump administration pursues lower tariff rates than economists feared earlier this year.
The International Monetary Fund, in its world economic outlook released on Tuesday, projects 3 percent global growth this year. That is higher than the 2.8 percent it forecast after Mr. Trump announced his “Liberation Day” tariffs in April, while down from the 3.3 percent it predicted in 2024.
Mr. Trump announced plans in April to raise tariff rates to their highest levels since the Great Depression, sending markets tumbling and causing economists to predict a downturn. Since then, the Trump administration has been negotiating trade deals with some of America’s largest trading partners and has delayed or reduced some of the tariffs.
The I.M.F. is currently projecting an effective tariff rate in the United States of 17.3 percent, down from its April forecast of 24.4 percent but still a historically high level that is a result of Mr. Trump’s imposing tariffs on all of the United States’ trading partners. The outlook was also buoyed by the fact that importers rushed to make purchases before tariffs took effect and because of the tax cuts that Republicans passed that could stimulate the U.S. economy.
The I.M.F. expects the U.S. economy to grow 1.9 percent this year, down from 2.8 percent in 2024. Output in the euro area is projected to accelerate to 1 percent from 0.9 percent last year. Europe’s outlook was revised higher because U.S. importers rushed to buy Irish pharmaceutical exports ahead of tariff increases.
China’s economy is forecast to grow 4.8 percent. That is down from 5 percent in 2024 but stronger than the 4 percent that the I.M.F. projected three months ago. The Chinese economy has benefited as companies have stocked up on its exports to get ahead of potential tariff increases.
Despite the rosier projections, the I.M.F. warned that the world economy still faced considerable risks.
“A rebound in effective tariff rates could lead to weaker growth,” the I.M.F. report said. “Elevated uncertainty could start weighing more heavily on activity, also as deadlines for additional tariffs expire without progress on substantial, permanent agreements.”
The I.M.F. added, however, that “global growth could be lifted if trade negotiations lead to a predictable framework and to a decline in tariffs.”
After an initial uproar over the tariffs, the Trump administration agreed to temporarily lower levies on Chinese imports to allow time for negotiations. The United States and China are holding talks this week to discuss extending the truce, which is scheduled to expire on Aug. 12.
The United States has also reached trade deals with Japan and the European Union in recent days that set tariff rates at 15 percent. The Trump administration plans to announce new tariff levels on countries that it has not yet reached deals with on Friday.
The tariffs do not yet appear to be having a significant effect on prices around the world. The I.M.F. said global inflation was expected to fall this year to 4.2 percent from 5.6 percent in 2024.
Economists at the fund noted that inflation had ticked up in the United States, where there are “tentative” signs that companies are passing tariffs on to consumers.
The I.M.F. warned that growing fiscal deficits could be a headwind for the global economy that could raise long-term interest rates and tighten global financial conditions.
The report pointed out that while the tax cut and spending legislation that passed in the United States this month brought clarity to the U.S. fiscal path, it also “added to uncertainty about longer-term fiscal sustainability.”
The I.M.F. estimates that the new law will increase the U.S. deficits by 1.5 percentage points of gross domestic product in 2026, with half of that offset by revenue from tariffs.