IMF raises US recession risk as tariffs drive global economic slowdown, and other finance news to know

The International Monetary Fund (IMF) has ramped up the likelihood of a US recession, the Financial Times (FT) reports, warning that President Donald Trump’s tariff policies are pushing the global economy towards a significant slowdown.

In its latest World Economic Outlook, the IMF revised its US growth forecast for 2025 to 1.8%, down from 2.7%.

“The major risk in front of us is that there could be further escalation in tariffs and trade tensions,” IMF Chief Economist Pierre-Olivier Gourinchas told the FT.

The IMF report also highlights the broader impact of ongoing trade disputes, noting that tariffs could drive up inflation in the US and increase financial instability worldwide. With tariffs rising, US consumer prices are expected to grow by 3% this year, a full percentage point higher than previous forecasts.

While the IMF’s central forecast suggests the global economy will avoid a recession in 2025, the likelihood of a US recession has climbed to 40%, up from 25% in its previous outlook.

March durable goods orders jumped more than expected, but US consumer sentiment dipped in April for the fourth month in a row, weighed down by tariff concerns.

And, according to a Reuters poll of economists, who just three months ago predicted strong global growth, risks of a global recession this year have in fact increased sharply, with many suggesting US trade policies have hurt business sentiment.

This analysis is in line with previous World Economic Forum research that projected the economic costs of global fragmentation could eclipse the 2008 financial crisis, decreasing global GDP by up to $5.7 trillion — or 5%.

Emerging markets in Asia are increasingly caught between the US and China as trade tensions escalate - but instead of picking sides, many are picking each other, reports CNBC.

Southeast Asia is particularly vulnerable to the fall-out of a trade war, it says. Recent US proposals include a 3,521% levy on the region's solar panels, while a 36% export tariff on Thailand is expected to heavily impact the country's already struggling rice sector.

However, the longstanding 'China+1' strategy appears to be gaining new momentum, with global firms shifting production to lower-cost hubs like Viet Nam, Malaysia and Cambodia in a bid to de-risk their supply chains.

“It’s also worth bearing in mind that these tariffs do nothing to eliminate the labour cost competitiveness of EM Asia ex-China economies,” Miguel Chanco, Chief Emerging Asia Economist at Pantheon Macroeconomics, told CNBC. “New supply chains won’t be created overnight - but they are forming.”

While the growth rates of emerging Asian economies are predicted to slow, intra-regional trade is on the rise. Goldman Sachs has downgraded growth forecasts for the region, with Viet Nam now expected to grow 5.3% in 2025, down from 6.5%, and Malaysia projected at 3.8%.

And regional cooperation is emerging as a buffer. UNCTAD Secretary-General Rebeca Grynspan told CNBC that “South-South trade has already been growing faster than North-North trade”, adding that this shift will likely accelerate under current US trade policy.

Market moves: US stocks saw strong gains last week, led by a rebound in tech shares and optimism around easing US-China trade tensions. Investor sentiment was buoyed by hopes of tariff de-escalation and solid earnings, pushing major indexes higher. Global stock sentiment remains cautiously optimistic as markets open this week, Reuters reports, buoyed by earnings and hopes that tariff pain has peaked, but weighed down by lingering trade uncertainties and mixed signals from US policy.

Here are some key factors in the mix:

US banking regulators have withdrawn documents urging caution around cryptocurrency. The Federal Reserve rescinded letters requiring banks to seek approval before engaging in crypto activities, alongside the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency's 2023 statements warning about crypto risks. This comes as the new head of the Securities and Exchange Commission (SEC), Paul Atkins, stressed the need for "clear regulatory rules" at an SEC crypto roundtable.

Gulf issuers, including the $925 billion Public Investment Fund (PIF), are preparing bond offerings despite recent market volatility caused by shifting US trade policies, according to sources cited by Reuters. PIF aims to raise up to $2 billion through a sukuk in the coming weeks, as the kingdom faces pressure to borrow or cut spending after a drop in crude prices threatens to hit its budget.

The euro has climbed 10% since March, reaching a record high, despite US tariffs. However, this rise could pose challenges for export-heavy European companies, particularly those in the STOXX 600, which rely on US sales. According to Bloomberg, the European Central Bank officials plan to lower interest rates further in June, anticipating lasting economic damage even if US trade policy softens.

Investors pulled a record amount from sustainable funds in Q1, signalling a global backlash against environmental, social and governance (ESG) investing, the Financial Times reports. US investors reduced their exposure for the 10th consecutive quarter, while Europeans became net sellers for the first time since 2018, withdrawing $1.2 billion, according to data from Morningstar.

US cargo shipments have plummeted by up to 60% since early April, causing major retailers like Walmart and Target to warn of empty shelves and higher prices by mid-May, reports Bloomberg. Industries such as logistics, trucking and retail are facing potential layoffs due to inventory shortages. Even if tariff tensions ease, it's predicted that a supply shock could stretch into the holiday season, causing delays and increasing costs.

Foreign investors in US stocks face increased losses, prompting a surge in demand for currency hedging. With the dollar down 6% this year, many investors, especially in Europe and Japan, are seeking protection against further declines in currency value.

Gold prices dropped over 1% as the strong dollar and optimism around US-China trade tensions reduced demand for safe-haven assets. Spot gold fell to $3,289.97, while US gold futures eased to $3,301.

Private market investors play a key role in the transition to a low-carbon economy, by providing patient capital, operational expertise and strategic scaling. Removing funding barriers and embedding sustainability into core business models can help private equity firms position portfolio companies for growth and future liquidity events.

As governments and business leaders negotiate tariff rates and exemptions, uncertainty continues to fuel volatility in global financial markets. The Forum’s Spencer Feingold, speaks to three experts about why tariffs create such turbulence and what this instability could mean for the global economy in the near future.