WASHINGTON, CMC—The International Monetary Fund (IMF) said on Tuesday that economic growth in Latin America and the Caribbean (LAC) is projected to moderate from 2.4 percent in 2024 to two percent this year before rebounding to 2.4 percent in 2026.
The IMF has released its World Economic Outlook (WEO) forecast, revising downward by 0.5 percentage points for 2025 and 0.3 percentage points in 2026 compared with the January 2025 WEO.
The figures were released here during the IMF’s Spring Meetings, which took place on Friday against the backdrop of the trade tariff announced by United States President Donald Trump in February and expanded in April.
The revisions in Latin America and the Caribbean largely reflect a significant downgrade to growth in Mexico, by 1.7 percentage points for 2025 and 0.6 percentage points for 2026.
This is lower than the projections in the January 2025 WEO Update by 0.5 percentage points for 2025 and 0.3 percentage points for 2026, with downward revisions for nearly all countries.
The downgrades are broad-based across countries and largely reflect the direct effects of the new trade measures and their indirect effects through trade linkage spillovers, heightened uncertainty, and deteriorating sentiment.
This reflects weaker-than-expected activity in late 2024 and early 2025, the impact of tariffs imposed by the United States, the associated uncertainty and geopolitical tensions, and a tightening of financing conditions.
Economic Counsellor and Director of the IMF’s Research Department, Pierre-Olivier Gourinchas, told a news conference coinciding with the release of the WEO that the IMF’s recommendations call for prudence and improved collaboration.
“First, the obvious priority is to restore trade policy stability. The global economy needs a clean, stable, and predictable trading environment that addresses long-standing gaps in international trading rules.”
He said monetary policy must remain agile and respond by tightening where inflation pressures re-emerge while easing, where weak demand dominates.
“Monetary policy credibility will be key, especially where inflation expectations might de-anchor, and central bank independence remains a cornerstone,” Gourinchas said, noting that many fiscal authorities will face new spending needs to bolster defense spending or to offset the trade dislocations likely to come.
“Some of the poorest countries also hit with reduced official aid could experience debt distress. Yet debt levels are still elevated, and most countries need to rebuild fiscal space by implementing structural reforms.
“Support, where needed, should remain narrowly targeted and temporary. It is easier to turn on the fiscal cap than to turn it off. Where new spending needs are permanent, such as defense spending in some countries, planning for offsetting cuts elsewhere or new revenues should be made.”
Gourinchas said that while some of the grievances against the trading system have merit, “we should all work towards fixing the system so that it delivers better opportunities for all.”
He said the landscape has changed since the last WEO update in January: “We’re entering a new era as the global economic system that has operated for the last 80 years is being reset.”
He noted that since late January, many tariff announcements have been made, culminating on April 2, with near-universal levies from the United States and counter-responses from trading partners.
“The US effective tariff rate has surged past levels over 100 years ago. Tariff rates on the US have also increased,” Gourinchas said, adding that the surge in policy and uncertainty is a major driver of the economy beyond the abrupt increase in tariffs.
He said that if sustained, increasing trade tensions and uncertainty will significantly slow global growth. Reflecting this complexity, the WEO presents a reference forecast that incorporates policy announcements by the US and trading partners up to April 4.
“Under these reference forecasts, global growth will reach 2.8 percent this year and three percent next year, a cumulative downgrade of about 0.8 percentage points relative to our January 2025 WEO update.”
Gourinchas said the WEO also offers a range of forecasts based on different policy assumptions.
“Under an alternative path that excludes the April tariff announcements, global growth would have seen only a modest downgrade to 3.2 percent this year.”
He said the IMF also used a model-based forecast to incorporate the temporary suspension of most tariffs announced on April 9 and the increase in bilateral tariffs between China and the US to prohibitive levels.
“This pause, even if extended permanently, delivers a similar growth outlook as a referenced forecast, 2.8 percent, even if some high-tariffed countries could benefit.”
Gourinchas said that while global growth remains well above recession levels, all regions are negatively impacted this year and next. The global disinflation process continues, but at a slower pace, with inflation revised up by 0.1 percentage points in both years.
“These trade tensions will greatly impact global trade. We project that global trade growth will be more than cut in half, from 3.8 percent last year to 1.7 percent this year.”
He noted that the tariffs will play out differently in different countries, adding that for the United States, they represent a supply shock that permanently reduces productivity and output and temporarily increases price pressure.
“This adds to an already weakening outlook and leads us to revise growth by 0.9 percentage points to 1.8 percent with a 0.4 percentage point downward from the tariffs only, while inflation is revised upwards.
“For trading partners, tariffs act mostly as a negative external demand shock, weakening activity and prices, even if some countries could benefit from trade diversion. This is why we have lowered our China growth forecast this year to four percent when inflation is revised down by 0.8 percentage points, increasing deflationary pressures.”
The report said the global economy is at “a critical juncture,” adding that signs of stabilization emerged through much of 2024 after a prolonged and challenging period of unprecedented shocks.
“Inflation, down from multi-decade highs, followed a gradual, bumpy decline toward central bank targets. Labor markets normalized, with unemployment and vacancy rates returning to pre-pandemic levels. Growth hovered around 3 percent in the past few years, and global output came close to potential.”
The WEO, however, said major policy shifts are resetting the global trade system and creating uncertainty that is once again testing the resilience of the global economy.
Gourinchas said all countries are negatively affected by the surge in trade policy and uncertainty as businesses cut purchases and investments while financial institutions reassess their borrowers’ exposure.
“Uncertainty also increases because of the complex sectoral disruptions that tariffs could cause, up and down supply chains, as we saw during the pandemic.”
The effect of these shocks on exchange rates is complex as the tariffs could appreciate the US dollar, as in previous episodes.
However, greater policy uncertainty, lower US growth prospects, and an adjustment in the global demand for dollar assets are weighing down on the dollar.
“Risks to the global economy have increased and are firm to the downside,” Gourinchas said, adding that while the IMF was not projecting a global downturn, the risks that may happen this year have increased substantially from 17 percent back in October to 30 percent now.
“An escalation of trade tensions would further depress growth. Financial conditions could also tighten as markets react negatively to diminished growth prospects and increased uncertainty. Conversely, growth prospects could immediately improve if countries ease their current trade policy stance and promote a new, clear, and stable trade environment,” Gourinchas said.
He said addressing domestic imbalances can also help raise growth while contributing significantly to closing external imbalances.
“For Europe, this means spending more on public infrastructure to accelerate collectivity growth for China. It means boosting support for domestic demand, while for the US, it means stepping up fiscal consultation.”
WEO said that globally, tariffs’ short-term growth impact varies across countries, depending on trade relationships, industry compositions, policy responses, and opportunities for trade diversification.
“Fiscal support in some cases (for example, China, Europe) offsets some of the negative growth impacts,” the WEO said.
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