IMF lowers global growth forecasts amid international tensions

The International Monetary Fund (IMF) has lowered its growth forecasts for most global economies, including Cambodia, following US President Donald Trump's announcement of punitive tariffs on its trading partners.

In its World Economic Outlook published on Tuesday in Washington, the IMF forecasts Cambodian GDP growth of 4.0% this year, down from 5.5% announced last October.

Growth for 2026 is now estimated at 3.4%, down from 5.8% previously.

‘Since February, the United States has announced several waves of tariffs on its trading partners, some of which have retaliated,’ the IMF said.

‘Markets initially reacted calmly to these announcements, until the United States imposed quasi-universal tariffs on 2 April, which triggered a historic fall in major stock indices and a rise in bond yields, followed by a partial recovery after the pause and additional exemptions announced on 9 April and after that date.’

Risk of further disorderly corrections

‘Despite the sharp stock market corrections in early March and April, price-to-earnings ratios in the United States remain high by historical standards, raising concerns about the possibility of further disorderly corrections.’

The IMF said its latest forecasts were based on information available as of 14 April, two weeks after Donald Trump announced ‘reciprocal tariffs,’ including 49% on imports from Cambodia.

For ASEAN economies other than Cambodia, the IMF also forecasts a slowdown in growth and has revised down its forecasts for the Philippines, Indonesia, Malaysia and Thailand from those contained in its January update (Cambodia was not included in that update).

The Philippines is expected to be the fastest-growing ASEAN economy this year, with expansion of 5.5%, followed by Vietnam (5.2%), Indonesia (4.7%), Malaysia (4.1%), Brunei and Laos (2.5% each), Singapore (2.0%), Myanmar (1.9%) and Thailand (1.8%).

Among the other five members of the Regional Comprehensive Economic Partnership (RCEP), China is expected to record the fastest growth at 4.0%, followed by Australia (1.6%), New Zealand (1.4%), South Korea (1.0%) and Japan (0.6%).

Hong Kong, which is seeking to join RCEP, the world's largest free trade agreement, is expected to grow by 1.5%.

Downward revisions are widespread across all countries

For the global economy as a whole, the IMF now forecasts growth of 2.8% this year, down from 3.3% in its January forecast.

‘The downward revisions are widespread across countries and largely reflect the direct effects of the new trade measures and their indirect effects through trade linkages, increased uncertainty and deteriorating sentiment,’ the IMF said.

In a commentary published on Tuesday, IMF economic adviser Pierre-Olivier Gourinchas said Trump's tariffs would be a ‘negative supply shock’ for the United States, as resources would be redirected to the manufacture of less competitive products.

‘We can expect tariffs to reduce competition and innovation and increase rent-seeking, which will further weigh on the outlook,’ he said.

Negative shock to demand for US trading partners

‘For trading partners, tariffs are primarily a negative shock to demand, driving foreign customers away from their products, although some countries may benefit from trade diversion.’

Mr. Gourinchas, who chaired Tuesday's press conference in Washington announcing the downward revision, warned that the density of global supply chains could ‘amplify the effects of tariffs and uncertainty.’

‘Most of the most traded goods are intermediate inputs that cross several borders before being transformed into finished products. Disruptions can spread throughout the global supply chain, with potentially significant multiplier effects, as we saw during the pandemic. Companies facing uncertain market access are likely to pause in the short term, reduce investment and cut spending.’

Mixed outlook for the dollar

As a country imposing tariffs, the United States ‘could see its currency appreciate as in previous episodes.

However, greater political uncertainty, a gloomier outlook for US growth and an adjustment in global demand for dollar-denominated assets — which has so far been orderly — could weigh on the dollar, as we have seen since the tariffs were announced.

In the medium term, the dollar could depreciate in real terms if the tariffs result in a decline in the productivity of the US tradable goods sector relative to its trading partners.

Need for a ‘clear and predictable trading system’

While escalating trade tensions could further slow global growth, the outlook could ‘improve immediately if countries eased their current trade policies and concluded new trade agreements,’ the French economist said.

Mr Gourinchas said the IMF's recommendations called for caution and better collaboration.

‘The first priority should be to restore stability in trade policies and conclude mutually beneficial agreements,’ he said.

‘The global economy needs a clear and predictable trading system that addresses long-standing gaps in international trade rules, including the widespread use of non-tariff barriers or other measures that distort trade. This will require increased cooperation.’

Technological progress and automation

On claims that globalisation has led to job losses in the manufacturing sector of advanced economies, Mr Gourinchas said: ‘These grievances are partly justified.’

But ‘the share of manufacturing employment in advanced economies has been declining for a long time in countries with trade surpluses, such as Germany, or deficits, such as the United States. The underlying force behind this decline is technological progress and automation, not globalisation,’ he said.

‘These two forces are ultimately beneficial, but they can be very disruptive for individuals and communities. It is our collective responsibility to ensure that we strike the right balance between the pace of progress or globalisation and addressing the disruption that comes with it.’