Islamabad/Washington: The International Monetary Fund (IMF) has revised down its growth forecast for Pakistan to 2.6%, attributing the reduction to the imposition of high US tariffs, now at century-high levels.
The IMF’s latest update, released on Tuesday, warned that escalating trade tensions would continue to dampen global growth, with Pakistan particularly affected by the new tariffs.
The US has applied a 29% tariff on Pakistani exports, a move that is expected to create both immediate challenges and, in the long run, potential opportunities for diversification within Pakistan’s economy.
In January, the IMF had already lowered Pakistan’s growth estimate to 3%, down from the previous 3.2%. However, the new forecast further slashes the growth projection for the current fiscal year to 2.6%.
The IMF has also revised inflation expectations, now forecasting 5.1% inflation for this year and 7.7% for the next.
The impact of these tariffs on Pakistan’s exports could be severe, with the Pakistan Institute of Development Economics (PIDE) warning of potentially devastating consequences.
PIDE highlighted that these tariff hikes could lead to macroeconomic instability, substantial job losses, and a significant decrease in foreign exchange earnings, all of which would significantly affect Pakistan’s economic standing.
PIDE also cautioned that the situation calls for urgent efforts to diversify Pakistan’s economy.
“A storm may be brewing on Pakistan’s trade horizon,” said the think tank, emphasizing that reciprocal tariffs from the United States could exacerbate the country’s economic woes.
Global Economic Forecasts Adjusted
On a global scale, the IMF also lowered its growth projections. It reduced its forecast for global growth in 2025 by 0.5 percentage points, now expecting a 2.8% expansion, down from its earlier estimate of 3.3%.
For 2026, the IMF expects growth to be slightly better at 3%, down from 3.3% in its previous projections.
The IMF acknowledged that inflation would fall more gradually than anticipated, with the global inflation rate expected to decline to 4.3% in 2025 and 3.6% in 2026, largely due to the prolonged impact of trade tariffs.
The US and other advanced economies are expected to experience more notable upward revisions in inflation.
IMF Chief Economist Pierre-Olivier Gourinchas described the present economic climate as a period of significant change.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” he noted during a briefing.
He warned that the rapid escalation of trade conflicts and the unpredictability of future policy decisions would have a profound effect on global economic activity.
“If trade tensions between the US and other countries escalate, it will create additional uncertainty and market volatility, which will further suppress global growth,” he explained.
While the IMF emphasized that the international monetary system remains resilient for now, it noted that medium-term global growth prospects were less optimistic, with the five-year forecast sitting at 3.2%, below the historical average of 3.7% observed between 2000 and 2019.
Global Trade and Regional Impact
The IMF also downgraded its forecast for global trade growth, slashing it by 1.5 percentage points to 1.7% in 2025.
This revision reflects the deepening fragmentation of the global economy, with significant reductions in trade between the US and China due to sharp tariff increases.
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According to Gourinchas, “Trade will continue, but it will become more expensive and less efficient,” as countries face growing uncertainty regarding where to invest and which products to source.
In Europe, the IMF projected slower growth for the Euro Area, revising its forecast for 2025 down to just 0.8%, followed by 1.2% growth in 2026. Spain was a notable exception, with a revised growth estimate of 2.5% for 2025, reflecting strong economic data.
In Germany, however, the IMF reduced its growth forecast by 0.3 percentage points to 0% for 2025, and it lowered the 2026 forecast to 0.9%.
The IMF attributed this downward revision to weaker private consumption, higher government borrowing costs, and new tariff measures.
The UK is also expected to face challenges, with growth forecast at only 1.1% in 2025, a 0.5 percentage point decrease from earlier projections, primarily due to the negative impact of new tariffs and weaker consumption.
However, growth in 2026 is expected to increase slightly to 1.4%.
Asia’s Growth Outlook
In Asia, the IMF also adjusted its growth forecast for Japan, projecting a 0.6% expansion in 2025, down from previous estimates.
In China, the growth forecast was reduced to 4% for both 2025 and 2026, a result of lower-than-expected trade growth and the negative impact of tariffs.
China’s economy, heavily reliant on exports, is particularly vulnerable to the shifting dynamics of global trade, with a projected reduction of 1.3 percentage points in its growth for 2025 due to the tariffs, though this is expected to be offset by stronger fiscal policies.
IMF’s revised forecasts underscore the global economic slowdown driven by escalating trade tensions and high tariffs.
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For Pakistan, the situation presents both immediate risks to its economic stability and longer-term opportunities for diversification and reform.
The current period of heightened uncertainty calls for strategic efforts to mitigate the economic impact, while seeking new avenues for growth and development in a rapidly changing global market.
