## FOREWORD

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### Context and production circumstances
- This April 2025 World Economic Outlook (WEO) was compiled under exceptional circumstances, with acknowledgment of the work of Petya Koeva Brooks, Deputy Director in the Research Department, her team, and staff of over 190 country teams within the IMF.
- The April 2 Rose Garden announcement forced the team to jettison projections nearly finalized at that point and compress a production cycle that usually takes more than two months into less than 10 days.
- The United States announced multiple waves of tariffs after the January 2025 WEO Update, culminating on April 2 with a set of nearly universal tariffs; many scheduled tariff increases are on hold for now, but the combination of measures and countermeasures has hiked US and global tariff rates to centennial highs.

### Macroeconomic assessment — trade shocks, supply chains, and uncertainty
- Tariffs are characterized as a negative supply shock for the economy imposing them:
  - Resources reallocated toward production of noncompetitive goods.
  - Resulting loss of aggregate productivity, lower activity, and higher production costs and prices.
  - In the medium term, tariffs reduce competition, increase market power of domestic producers, decrease incentives to innovate, and create opportunities for rent seeking.
- For trading partners, tariffs are mostly a negative external demand shock, driving foreign customers away from their products, though some countries could benefit from rerouting of trade flows.
- Modern complex global supply chains magnify these effects:
  - Most traded goods are intermediate inputs that traverse countries multiple times before final transformation.
  - Sectoral disruptions can propagate through the global input-output network with potentially large multiplier effects, similar to pandemic disruptions.
- The April 2 increase in tariffs and uncertainty is expected to lead to a significant slowdown in global growth in the near term; this is the central scenario or “reference forecast,” though many possible paths exist.
- Global trade projection was revised down by 1½ percentage points this year, with a slight recovery penciled in for 2026.
- Increased uncertainty about market access will lead many firms to pause, reduce investment, and cut purchases; financial institutions will reevaluate credit supply—this combined uncertainty and tightening of financial conditions is a global negative demand shock and will weigh on activity.
- The short-term demand effects are visible in the sharp decline in oil prices.

### Exchange rates and financial conditions
- The net effect of tariffs on exchange rates is complex:
  - The US may see its currency appreciate due to reduced demand for foreign currency as imports decline and possible easing of monetary policy by tariffed countries.
  - Greater policy uncertainty, lower US growth prospects, and adjustments in global demand for dollar assets can weigh on the dollar; such downward pressure was observed immediately after the announcements.
  - In the medium term, the dollar may depreciate in real terms if tariffs translate into lower productivity in the US tradables sector relative to trading partners.
- Risks are firmly tilted to the downside:
  - Emerging market and developing economies with more limited buffers are being severely tested.
  - Risk of trade retaliation ratcheting up with negative consequences for global growth.
  - Financial conditions may tighten further or abruptly if markets react negatively to diminished growth prospects and increased uncertainty.
  - While banks remain well capitalized overall and market movements have been orderly so far, they may be tested in a full-blown risk-off episode.
- The April 2025 Global Financial Stability Report reviews market developments in detail.

### Policy recommendations and trade-offs
- Overarching message: prudence, clarity, and increased collaboration.
- Trade policy:
  - Bring back stability and find mutually beneficial trade arrangements.
  - Businesses need predictability; the global economy needs a well-functioning rules-based trading system that addresses gaps such as pervasive use of nontariff barriers and trade-distorting measures.
- Monetary policy:
  - Monetary policy will need to remain ahead of the curve.
  - Faced with tariffs and supply-chain disruptions, some countries may face steeper trade-offs between inflation and output; inflation expectations may become less well anchored.
  - For countries where inflation dominates, forceful tightening will be needed; for others where the negative demand shock dominates, policy rates may need to be lowered.
  - Credibility of the monetary policy framework—and central bank independence—will remain key.
- Currency policy:
  - Currency markets may experience strong volatility, posing difficulties particularly for emerging market economies.
  - In line with the Integrated Policy Framework, countries should let their currency adjust when driven by fundamental policy forces; that framework specifies conditions under which intervention could be advisable.
- Fiscal policy:
  - Fiscal authorities face starker trade-offs amid high debt, low growth, and rising financing costs.
  - Heightened pressure on bond yields and new spending pressures increase fiscal fragilities.
  - Support for those at risk of severe dislocation from trade policy may be inevitable but should be narrowly targeted and incorporate automatic sunset clauses.
  - For countries with little fiscal space: remain within budgetary envelope to avoid jeopardizing medium-term debt sustainability.
  - For countries with sufficient fiscal space: temporary parts of additional spending can be financed by debt; new permanent spending should be offset by spending cuts elsewhere or stronger domestic revenue mobilization.
  - These points are further developed in the April 2025 Fiscal Monitor.
- Medium-term growth and productivity:
  - Continue efforts to boost total factor productivity by addressing deep-seated structural constraints and exploiting technological breakthroughs.
  - Generative artificial intelligence offers promise; countries should position themselves to harness it responsibly by implementing policies to develop digital infrastructure and acquire necessary skills.

### Analytical focus in the report
- Chapter 1 discusses the variety of possible paths for the outlook given unpredictable future trade policy and the diverse impact of tariffs across countries.
- Chapter 2—“The Rise of the Silver Economy”—examines demographic headwinds, public finance challenges, progress in “healthy aging,” and policies to increase labor force participation and close gender gaps to offset aging effects.
- Chapter 3—“Journeys and Junctions”—analyzes spillovers from migration policies in destination countries to origin, transit, and bordering economies, noting that emerging market and developing economies are increasingly receiving migration and refugee flows and that integration and infrastructure policies can have large effects.

*International Monetary Fund | April 2025*

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_Source: https://www.imf.org/-/media/files/publications/weo/2025/april/english/foreword.pdf_