The World Bank recently published a new report. It is a signal that the global economy is growing at its slowest rate outside of a recession since the 2008 Great Recession. These results reflect significant downward revisions of growth forecasts for all six emerging market sub-regions. These changes are remarkable, especially considering these estimates were made a mere six months ago. The downgrade occurred just weeks before Donald Trump took office as U.S. President. It underscores the ongoing fragility and unpredictability of global trade and economic stability.
As a result, the report warns that global trade growth will increase by just 1.8 percent in 2025. This figure represents an incredible drop from the previously expected 3.4 percent increase for 2024. That’s just shy of one-third of the 5.9 percent annual increase we experienced during the 2000s. Moreover, global inflation is expected to settle at 2.9 percent in 2025, still above pre-COVID rates.
One of the biggest takeaways from the report was the recognition that poorer countries will face the worst impacts. In 2027, developing economies will be 6 percent smaller than they would have been, had COVID-19 never happened. This massive economic collapse further highlights the disproportionate impact of the pandemic around the country by demonstrating its greater burden on lower income households and communities.
Impact of Tariff Policies
The World Bank’s analysis takes into account all the new tariffs implemented under the Trump Administration. These aggressive policies have profoundly damaged global trade and added a palpable chill of fear and worry into the existence of business. The report notes,
“This is in line with the January forecast, reflecting the impacts of higher US tariffs and slower growth in major advanced economies, which are assumed to be offset by the announced fiscal policy support measures,” – World Bank report.
These tariff measures have resulted in a more cautious outlook for international trade, as businesses navigate the complexities of increased costs and potential retaliatory actions from trading partners.
Europe’s economy will grow surprisingly little, only 0.7 percent through 2025. This further deceleration reflects the difficult headwinds the region is up against as trade tensions escalate and some of their most important markets cool.
Global Economic Growth Projections
The World Bank’s twice-a-year assessment of the health of the global economy indicates that economic growth around the world will be the weakest since the 2008 financial crisis. This trend is without any recessionary years included. The overall U.S. GDP forecast has decreased by 0.9 percentage points from last estimate. Today, it is a mere 1.4 percent. This downward revision reflects not only domestic challenges but broader global economic conditions that continue to exert pressure on growth.
Ayhan Kose, a prominent economist at the World Bank, remarked on the prevailing uncertainty affecting investment decisions:
“Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook,” – Ayhan Kose.
Now the report’s modelling focus has shifted to today’s economic trajectory, along with the great risks it poses. While it does not forecast a recession, these outstanding grievances would likely contribute to additional economic downturn.
Future Outlook
Countries are still reeling from the severe economic impacts of COVID. The World Bank’s already pessimistic forecasts have proven too optimistic, underscoring the need for strategic policy responses to shield vulnerable economies from harm. The projections emphasize that without decisive actions to foster stability and growth, many developing nations will struggle to recover from the profound impacts of the pandemic.
Report’s authors sounded alarms on the state of global trade and economic recovery, noting increased risks. It underscores the overwhelming imperative for countries to work together as they confront this moment of global upheaval. This is a tough bind that policymakers can find themselves in. They need to spark economic growth, but protect those who will be affected by the expected slow growth levels and high inflation.
