World Bank warns of weakest global growth in 17 years as trade tensions escalate

THE global economy is set for its weakest performance in nearly two decades outside of outright recessions, the World Bank said on Tuesday, slashing its growth forecasts as rising trade barriers and policy uncertainty stifle investment and demand.

In its Global Economic Prospects report the institution projected global growth would slow to 2.3 per cent in 2025, down from an estimated 2.8 per cent in 2024, marking the slowest pace since the 2008 financial crisis. A modest recovery to 2.5 per cent is expected by 2027 but the rebound will leave output “materially below” earlier projections, the report warned.

“The world economy today is once more running into turbulence,” the World Bank said. “Without a swift course correction the harm to living standards could be deep.”

The downgrades reflect a sharp escalation in trade tensions, particularly new US tariffs that have pushed the country’s average effective tariff rate to its highest level in nearly a century. Retaliatory measures and supply chain disruptions have amplified uncertainty, with global trade growth forecast to plummet to 1.8 per cent in 2025, down from 3.4 per cent in 2024.

“International discord — about trade, in particular — has upended many of the policy certainties that helped shrink extreme poverty and expand prosperity after the end of World War II,” the report said.

Advanced economies are bearing the brunt of the slowdown, with US growth expected to drop to 1.4 per cent in 2025 — half of the 2.8 per cent it recorded in 2024 — and the euro area limping along at 0.7 per cent. China, meanwhile, will see growth ease to 4.5 per cent as its property crisis and weaker exports offset fiscal stimulus efforts.

Emerging markets are faring only slightly better, with growth in emerging markets and developing economies (EMDEs –excluding China) forecast at 3.4 per cent in 2025. But the World Bank noted that per capita income levels in these economies will remain about 5 per cent below pre-pandemic trends, with low-income countries facing an even steeper climb.

“By 2027 the per capita GDP of high-income economies will be roughly where it had been expected to be before the COVID-19 pandemic. But developing economies would be worse off, with per capita GDP levels 6 per cent lower,” the report said.

However, the outlook is clouded by multiple threats, including protectionist spirals. The World Bank said further tariff hikes could trigger a 0.5 percentage point drag on global growth. Added to this is financial stress with narrow risk premia in equity and credit markets, leaving assets vulnerable to sharp corrections. And then there is the risk that conflicts in Ukraine, the Middle East, and Africa are exacerbating food insecurity and displacing millions.

“The poorest countries will suffer the most,” the World Bank cautioned, noting that over half of low-income nations are now in or at high risk of debt distress.

To avert a prolonged slump the institution urged three priorities. The first is urging countries to rebuild trade relations by lowering tariffs and converting preferential trade pacts into deeper agreements, which could boost global growth by 0.2 percentage points. In addition to that, it calls for a restoration of fiscal order, calling for EMDEs to broaden their tax bases and cut costly subsidies to tackle deficits averaging 6 per cent of GDP — the highest this century. The next recommendation is for policies to accelerate job creation. Sub-Saharan Africa alone must absorb 600 million new workers by 2050, requiring reforms to education and labour markets, it pointed out.

“This moment offers a chance to reset the agenda — with renewed global cooperation, restored fiscal responsibility, and a relentless focus on creating jobs,” said Indermit Gill, the World Bank’s chief economist. “With decisive action, governments across the world can still regain the momentum of poverty reduction.”

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