World Bank: Global economy set for weakest run since 2008 outside of recessions

In a recent release of the World Bank’s Global Economic Prospects report, heightened trade tensions and policy uncertainty are set to lower global growth to its slowest pace since the financial crisis of 2008—excepting outright global recessions. World Bank Senior Economist Phil Kenworthy pointed to significant challenges facing economies worldwide and shared crucial recommendations for navigating this turbulent economic landscape.

The global economy is grappling with two major shocks—an unprecedented rise in policy uncertainty and a historic increase in trade barriers. According to Kenworthy, these factors are likely to weigh heavily on investment and export growth, consequently slowing down the overall economic momentum. The latest report forecasts a growth rate of 2.3 percent for the global economy in 2025, marking the weakest performance outside of the 2009 and 2020 recessions.

Nevertheless, Kenworthy clarified, “We are not forecasting a global recession. It’s important to say that.” Despite this reassurance, the outlook suggests an undeniably challenging phase for the global economy, with weak growth being the order of the day.

In the face of such challenges, Kenworthy offered a series of urgent recommendations to policymakers, especially those in developing economies. One key strategy involves leaning into regional and bilateral trade agreements. By fostering closer trade ties within and between regions, countries can hedge against the negative impacts of reduced trade with advanced economies. Emphasis was also placed on boosting trade in services, which has become a pivotal driver of global commerce.

Kenworthy urged governments to enhance their physical infrastructure and regulatory frameworks to reduce domestic trade costs effectively. Actions toward these objectives are critical, he noted, as they can lead to increased productivity and economic dynamism.

Turning to inflation, conditions appear complex and divergent across different regions. Initially, it was expected that global inflation would return to manageable levels this year. However, current forecasts suggest that reaching such stability might not occur until 2027. In advanced economies, tariff increases are likely to exacerbate inflation pressures, particularly affecting the United States. Conversely, emerging markets and developing economies could witness lower price pressures from these global trade tensions, thanks in part to reduced demand.

“Services prices in many nations remain sticky,” admitted Kenworthy, highlighting ongoing challenges. While the broader inflation outlook points towards a gradual decline, the timeline for achieving target levels of inflation has been extended by a year, indicating that more rigorous efforts will be needed to “squeeze out this last mile of sticky inflation.”

The report also shed light on sub-Saharan Africa, projecting growth to strengthen to 3.7 percent in 2023 and average 4.2 percent by 2026, fueled by positive developments in key economies like South Africa and Nigeria. Despite the promising picture, Kenworthy cautioned that this should be seen more as a recovery than sustained acceleration. Challenges related to high public debt and elevated borrowing costs remain pressing issues for authorities in the region.

To address regional risks, Kenworthy stressed the importance of ensuring fiscal sustainability and preventing debt situations that could destabilize countries’ economic trajectories. “The big challenge in the region is to ensure fiscal sustainability,” he pointed out, emphasizing the need for efficient public spending alongside credible, mid-term fiscal planning. As he explained, these efforts would pave the way for improved investor confidence, effectively granting governments more flexibility to address economic challenges.

Overall, the World Bank’s report urges decisive action and well-calibrated policies, encouraging nations to seize opportunities and mitigate risks in these uncertain times.

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