Mint Primer: IMF says the US will avoid a recession. How?

What did the IMF say about the US?

The IMF, in its latest World Economic Outlook, has forecast that the US economy will witness a sharp slowdown on account of Trump’s disruptive trade measures and policy uncertainties. It has cut the 2025 growth forecast by 0.9 percentage point to 1.8%. In contrast, it had projected a 2.7% growth in January. However, the IMF, for now, does not expect the US to enter a recession as its economy entered 2025 with firm momentum. But it has warned of significant downside risks and negative shocks which have forced it to raise the probability of a US recession this year to 40% from 25% earlier.

Also read: World Bank lowers India’s growth forecast by 0.4 points to 6.3% for FY26 amid global uncertainty after IMF’s cut

How are other economies faring?

The resetting of the global economic system is sparing no one, with looming sharp tariff increases and attendant uncertainty causing global growth to stall (see chart). China’s growth has been downgraded from 4.6% to 4%. The euro area will grow by just 0.8% and emerging markets will see a 0.5 percentage point reduction in growth. Overall, the global economy will grow by 2.8% as against 3.3% projected in January, according to the IMF. While the global economy is unlikely to slip into a recession this year, the estimated 2.8% growth is far lower than the 2000-2019 period average of 3.7%.

Also read: Trump's attacks on the Fed are a gift to Xi Jinping

What does IMF say about India’s prospects?

The IMF has cut India’s growth forecast for 2025-26 to 6.2% from 6.5% projected earlier. The outlook for India is relatively stable supported by private consumption, especially in rural areas. It blamed the 0.3 percentage point cut on global uncertainty and trade tensions. It projects 6.3% growth for 2026-27, echoing similar revisions by the Asian Development Bank, Moody’s, etc.

What can push the US into a recession?

Rising trade tensions, especially with China, are the main fear. With unprecedented tariffs, imports from China have all but stopped. Experts warn of significant price increases as US retailers rework their supply chain. Consumption, which accounts for 70% of US economic growth, is expected to plummet. Trump, it appears, is not done yet. The US has announced plans to slap a 3,521% tariff on solar panels imported from South-East Asia. Tariffs on pharmaceuticals and semiconductor chips are expected soon.

Also read: Global growth set to slow sharply amid trade tensions, policy uncertainty: IMF

Can the US dig itself out of this quagmire?

The IMF says immediate restoration of stability in the US’ trade policy is critical. That can happen if the US is able to conclude mutually beneficial trade deals soon and permanently revoke the tariffs (kept in abeyance for 90 days). Uncertainty on the dollar front needs to ease. While tariffs could cause the dollar to appreciate, slower growth and investors moving away from dollar assets may weaken the greenback. Policy uncertainty, even more than the tariffs, will hurt the US, warn experts. That needs to be fixed.