IMF US Production Plunges, Recession 40%, Korea's Growth Rate Cut in Half
The IMF has set the possibility of a recession at 40% due to a sharp decline in US production and has cut Korea's growth rate by half this year.
The International Monetary Fund (IMF) annual report predicted that US production will slow from 2.8% last year to 1.8% this year and halved Korea's growth rate from 2.0% to 1.0% this year.
In its announcement on the 22nd, the IMF forecast that production next year will slow down more than previously forecast, and that global production will slow from 3.3% in 2024 to 2.8% this year, and sharply revised the US inflation forecast from 2% to 3% this year.
“The increased price pressures due to tariffs are likely to be temporary in the United States, but the decline in productivity and output will be permanent,” said Pierre-Olivier Gourinchas, IMF chief economist, at a press conference on the 22nd. “The global economic system that has worked for the past 80 years is being reset.”
“The effective tariff rate in the United States has now soared beyond the levels it reached in the early 20th century. Beyond the tariffs themselves, the surge in policy uncertainty, not only related to trade policy but also more broadly, is a major driver of the economic outlook,” Gourinchas said in a briefing with reporters.
The New York Times financial reporter said of his remarks, “Although the IMF is not predicting a recession in the U.S., the risk of such a recession has increased to 40% from 25% in October,” and “It has also revised down its growth forecasts for China and Europe, but the IMF suggested that fiscal support from both governments could help cushion the blow from the tariffs.”
The Bank of Korea set this year’s growth rate at 1.5%, the government announced 1.8%, and the Korea Development Institute (KDI) announced 1.6% growth, but the IMF’s 1.0% growth was replaced by an announcement that next year would be “worse,” which added to the shock.
The IMF’s announcement makes it clear that tariffs could complicate efforts to curb inflation, and on that day, it revised its U.S. inflation forecast upward from 2% to 3% this year.
The Bank of Korea announced on the 22nd that foreign investment funds in domestic stocks had a net outflow of $1.16 billion in March, continuing a net outflow for eight consecutive months since August of last year.
The outflow of foreigners from the stock market is the longest since the financial crisis in 2008.
The IMF report stated that “the prospect that countries may raise tariffs to higher levels poses a significant risk to the growth prospects of the world, especially poor countries.”
Regarding this, Chief Gorintsas told reporters, “The global economy has shown remarkable resilience despite the extreme shocks of the past four years, and it still bears considerable scars,” and “It is now being put to a severe test once again, especially in emerging markets and developing countries where buffers are more limited,” and said, “The shock is concentrated in emerging and developing countries.” The IMF report cut its global growth forecast for 2025 by 0.5 percentage points to 2.8 percent, down 0.3 percentage points from its January forecast of 3.3 percent growth in two years.
The IMF said inflation would fall more slowly than expected in January due to the impact of tariffs, reaching 4.3 percent in 2025 and 3.6 percent in 2026, with “notable” upward revisions expected in the United States and other advanced economies.
“The sharp escalation in trade tensions and the ‘very high’ level of uncertainty about future policy will have a significant impact on global economic activity,” Gurinchas told Reuters. “It’s very significant and it’s hitting every region of the world. We’re seeing lower growth in the United States, lower growth in the euro area, lower growth in China, lower growth in other parts of the world.”
He continued, “If trade tensions between the US and other countries escalate, uncertainty will increase, financial market volatility will increase, and financial conditions will tighten, and these combined effects will further lower the global growth outlook,” he said. “Demand for the dollar has already declined as growth prospects have weakened, but the adjustments in currency markets and portfolio rebalancing that have been seen so far have been orderly,” he said, calling it “a weak dollar due to deteriorating trade demand.”
“We are not in a rush to the exit,” he said of currencies. “We are not concerned about the resilience of the international monetary system at this stage. Something much bigger than this is needed,” he said. “Trade will continue, but it will be more costly and less efficient,” he told Reuters. “It is absolutely critical to restore some form of predictability and clarity to the trading system, given the confusion and uncertainty about where to invest and where to source products and components.”
The IMF has cut its growth forecast for China to 4 percent in 2025 and 2026. This is a 0.6 percentage point and 0.5 percentage point downward revision from the January outlook, respectively.
Regarding China, Gu Rinchas told reporters, “In China, which is heavily dependent on exports, the impact of tariffs was about 1.3 percentage points in 2025, but this was offset by stronger fiscal measures.”
For Japan, the IMF expects a 0.5 percentage point decline from its January outlook, with growth forecast at 0.6 percent.
For the euro area, the IMF forecasts growth to slow to 0.8 percent in 2025 and 1.2 percent in 2026, both down about 0.2 percentage points from January. Spain, the only rising country, saw its 2025 growth forecast revised up by 0.2 percentage points to 2.5 percent, with the IMF pointing to “wage growth” as “offsetting factors”, saying “Spain reflects strong data” and “including increased consumption driven by rising wages and anticipated fiscal easing following a major change to Germany’s ‘debt brake’”.
The IMF revised down its German growth forecast by 0.3 percentage points to 0.0 percent in 2025 and by 0.2 percentage points to 0.9 percent in 2026.
The IMF said the UK’s growth rate is now 0.5 percentage points lower than its January forecast at 1.1 percent in 2025, before rising to 1.4 percent in 2026, reflecting the impact of recent tariff announcements, rising government bond yields and weakening private consumption.
The AP reported on the 18th, "IMF Managing Director Kristalina Georgieva said on the 17th that the Trump administration's sharp tariff hikes have increased global uncertainty," adding, "She added that import taxes would slow global growth but would not trigger a worldwide recession."
However, IMF Chief Economist Pierre-Olivier Gurintsas wrote in a blog post along with this outlook that the policies Trump has promised to introduce 'are likely to further increase inflation in the short term,'" reporting on the differences of opinion within the IMF.
The IMF's announcement on the 22nd said, "The US inflation outlook has been revised upward from 2% to 3% this year" and "The risk of a US recession has increased from 25% in October last year to 40%," but there was a large gap in the statement made on the 17th by IMF Managing Director Georgieva, who said, "Import taxes will slow global growth, but will not cause a global recession."