The International Monetary Fund (IMF) sharply lowered its forecasts for world growth for this year and next, warning the outlook could deteriorate further as US President Donald Trump’s tariffs spark a global trade war.

The downgrades add weight to similar warnings from several Wall Street banks in recent weeks, with JPMorgan Chase & Co. and Goldman Sachs Group Inc. saying the chances of a recession in the US have spiked.

The IMF cut its projection for global output growth this year to 2.8% in its updated World Economic Outlook released Tuesday. That’s lower than its January forecast of 3.3% and would be the slowest expansion of gross domestic product since the Covid-19 pandemic in 2020. It would also be the second-worst figure since 2009.

The fund reduced its estimate for next year to 3%, a drop of 0.3 percentage points.

For the US, the trade war will stoke a supply shock that drives up prices and weighs on productivity, the IMF said. For trading partners, the higher duties will translate as a demand shock that hits output and prices.

Effective tariff rates in the US have jumped to levels not seen in a century, the IMF said.

“We are entering a new era,” IMF Chief Economist Pierre-Olivier Gourinchas said in a briefing with reporters. “The global economic system that has operated for the last 80 years is being reset.”

US stocks, the dollar and long-dated Treasuries have been volatile amid the Trump onslaught, sinking Monday as he upped calls for the Federal Reserve to slash interest rates, exacerbating concerns about the central bank’s independence and the direction of the world’s biggest economy. The S&P 500 Index has lost around 12% since the end of 2024.

The US and China were among countries to see the biggest IMF downgrades.

The US is forecast to grow 1.8% this year and 1.7% in 2026, a cut of 0.9 and 0.4 percentage points, respectively. The IMF increased its forecast for US inflation in 2025 by roughly one percentage point to 3%.

China is tipped to grow 4% this year and next, down by 0.6 and 0.5 percentage points.

The world’s growth prospects would improve immediately if trade tensions calmed and long-standing complaints about non-tariff barriers and trade-distorting measures by some countries were addressed, the IMF said.

Still, it said the near-term risk is of further escalation with knock on consequences for growth. The Washington-based fund cut its forecast for global trade growth this year by 1.5 percentage points and sees only a slight recovery next year.

“The risks to the global economy have increased and are firmly to the downside,” Gourinchas said.

The IMF cautioned that many scenarios are possible given the uncertainty surrounding trade policy. The fund said it jettisoned projections that had been nearly finalised before April 2, when Trump announced sweeping tariffs on the world, and was forced to compress a forecasting cycle that typically takes over two months into 10 days.

In an explainer of how it compiled its new forecasts amid the rolling tariff turmoil, the IMF said it has used a reference forecast — or a central scenario — based on information available as of April 4, rather than a baseline forecast.

Analysis by Alex Isakov and Adriana Dupita of Bloomberg Economics last week found that, based on a review of previous IMF forecasts, the fund tends to underestimate the depth of downturns.

“The IMF’s projections tend to skew optimistic during potentially disruptive crises,” they wrote. “However much the IMF may downgrade the growth forecasts to start, history suggests the ultimate blow will be worse.”