The global economic outlook has taken a somber turn as the World Bank today sharply downgraded its forecast for global growth in 2025 to 2.3%, a significant reduction from its previous projections.
The bank said this would be the slowest global growth outside a recession year since 2008.
The bank stated that higher tariffs and related uncertainties would weigh on growth expectations for all economies.
The World Bank’s latest Global Economic Prospects report paints a stark picture, revealing that the global economy has missed its chance for a “soft landing” – a gradual slowdown that tames inflation without inducing severe pain.
Instead, World Bank Chief Economist Indermit Gill warned that the world economy is “once more running into turbulence,” with potential for “deep harm to living standards” without swift course correction.
The tariff contagion and global uncertainty
The bank lowered growth forecasts for 70% of all economies from the levels it predicted six months ago, before US President Donald Trump came back to office.
The primary driver behind this gloomy outlook is the substantial rise in trade barriers, implicitly referencing the United States’ erratic and aggressive trade policies.
The imposition of new tariffs, including a 10% tax on imports from almost every country, has driven up costs within the U.S. and triggered retaliatory measures from other nations.
This unpredictable rollout of tariffs has created a pervasive atmosphere of uncertainty, discouraging business investment and dampening global trade.
The World Bank forecasts global trade growth at a mere 1.8% in 2025, a sharp decline from 3.4% in 2024, and a stark contrast to the 5.9% average seen in the 2000s.
US growth takes a hit
The world’s largest economy, the United States, is not immune to the fallout from its own trade policies.
The World Bank has drastically cut its U.S. growth forecast for 2025 to 1.4%, a significant drop from the 2.8% growth experienced in 2024.
This marks a considerable downgrade from the 2.3% U.S. growth initially forecast for 2025 just six months ago.
The rising trade barriers, “record-high uncertainty,” and a spike in financial market volatility are expected to weigh heavily on private consumption, trade, and investment within the US.
The US and China officials are meeting this week to discuss trade negotiations.
Lowest growth in decades and recessionary shadows
The World Bank also forecasts that the global growth in the decade will be at 2.5%, the slowest pace of any decade since the 1960s.
While the World Bank stopped short of forecasting a global recession, it did not entirely dismiss the possibility.
The report highlights that if trade restrictions escalate further or if policy uncertainty persists, growth could be even lower.
The risk of a global recession, however, is currently estimated to be less than 10%.
Nevertheless, the growing economic headwinds and the significant slowdown in trade raise concerns about increased vulnerability to future shocks, elevating the background risk of localized or even broader economic downturns.
Pockets of resilience: countries delivering good growth
Despite the overall bleak picture, some economies are still expected to deliver relatively strong growth.
India is once again projected to be the world’s fastest-growing major economy, with an anticipated expansion of 6.3% in 2025, though this is a slight moderation from 6.5% in 2024 and 6.7% previously forecast for 2025.
China’s growth forecast was left unchanged at 4.5% as it expects higher government spending to offset weaker US exports.
Other emerging markets and developing economies (EMDEs) are expected to grow by an average of 3.8% in 2025, down from 4.1% in January’s forecast.
However, the report cautions that poor countries will suffer the most, with their per capita GDP by 2027 projected to be 6% below pre-pandemic levels.
The bank projected that it would take 2 decades for these countries to recoup the losses of the 2020s.
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