World Bank Cuts 2025 Global Growth Forecast to 2.3% Amid Trade Tensions

The World Bank has revised its global economic growth forecast for 2025, lowering it to 2.3%. This adjustment comes as a result of escalating trade tensions and policy uncertainties, which are expected to significantly impact the growth prospects of nearly all economies. The bank's latest Global Economic Prospects report indicates that nearly 70% of economies have had their growth forecasts revised downward. This downward revision is primarily due to the increasing uncertainty and high tariffs that are posing substantial obstacles to economic growth.

The report highlights that the current economic environment is fraught with challenges, with the average global growth rate for the first seven years of the 2020s expected to be the slowest since the 1960s. The World Bank's Chief Economist and Senior Vice President for Development Economics, Indermit Gill, noted that outside of Asia, the developing world is becoming a region of stagnation. The growth rates of developing economies have been declining for decades, from an average of 6% in the 2000s to 5% in the 2010s, and now below 4% in the 2020s. This trend mirrors the slowdown in global trade, which has decreased from an average of 5% in the 2000s to around 4.5% in the 2010s, and now below 3% in the 2020s. Investment growth has also decelerated, while debt levels have reached record highs.

The report predicts that nearly 60% of developing economies will experience a slowdown in growth this year, with an average growth rate of 3.8% in 2025, slightly increasing to 3.9% in 2026 and 2027. This is more than one percentage point lower than the average growth rate of the 2010s. Low-income countries are expected to grow at 5.3% this year, down from the initial forecast of 5.7%. The increase in tariffs and tightening labor markets are also contributing to upward pressure on global inflation, which is projected to average 2.9% in 2025, remaining above pre-pandemic levels.

The slowdown in growth will hinder efforts by developing economies to promote job creation, reduce extreme poverty, and narrow the gap in per capita income with advanced economies. The per capita income growth in developing economies is expected to be 2.9% in 2025, 1.1 percentage points lower than the average from 2000 to 2019. Assuming that developing economies, excluding China, can maintain an overall GDP growth rate of 4% (as projected for 2027), it will take them about twenty years to return to their pre-pandemic growth trajectory.

If major economies can alleviate trade tensions, reducing overall policy uncertainty and financial volatility, the global economic recovery could be faster than anticipated. Analysis shows that if current trade disputes are resolved through agreements that halve tariffs from their May levels, global growth could be 0.2 percentage points higher on average in 2025 and 2026. The World Bank's Vice President and Director of the Prospects Group, Ayhan Kose, emphasized that emerging markets and developing economies have greatly benefited from trade integration but are now at the forefront of global trade conflicts. The best response is to double efforts to integrate with new partners, promote growth-enhancing reforms, and strengthen fiscal resilience to weather the storm. As trade barriers rise and uncertainty increases, resuming global dialogue and cooperation can pave the way for a more stable and prosperous future.

The report advises developing economies to seek strategic trade and investment partnerships with other economies and promote trade diversification, including through regional agreements, to achieve broader openness. Given limited government resources and growing development needs, policymakers should focus on mobilizing domestic revenue and prioritizing fiscal spending to support the most vulnerable households, while strengthening fiscal frameworks. To accelerate economic growth, countries need to improve the business environment and promote productive employment, ensuring that workers acquire the necessary skills and creating conditions for efficient matching between workers and enterprises. Global cooperation is crucial for supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing, and providing emergency relief and support to countries embroiled in intense conflicts.