The World Bank on Tuesday slashed its global growth forecast for 2025 by four-tenths of a percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.
In its twice-yearly Global Economic Prospects report, the global lender lowered its forecasts for nearly 70% of all economies - including the U.S., China and Europe, as well as six emerging market regions - from the levels it projected six months ago before U.S. President Donald Trump took office.
Trump has upended global trade with a series of on-again, off-again tariff hikes that have increased the effective U.S. tariff rate from below 3% to the mid-teens - its highest level in almost a century - and triggered retaliation by China and other countries.
The World Bank is the latest body to cut its growth forecast as a result of Trump's erratic trade policies, although U.S. officials insist the negative consequences will be offset by a surge in investment and still-to-be approved tax cuts.
It stopped short of forecasting a recession, but said global economic growth this year would be the weakest outside of a recession since 2008. By 2027, global gross domestic product growth was expected to average just 2.5%, the slowest pace of any decade since the 1960s.
The report forecast that global trade would grow by 1.8% in 2025, down from 3.4% in 2024 and roughly a third of its 5.9% level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10% U.S. tariff on imports from most countries. It excludes increases that were announced by Trump in April and then postponed until July 9 to allow for negotiations.
The World Bank said global inflation was expected to reach 2.9% in 2025, remaining above pre-COVID-19 levels, given tariff increases and tight labor markets.
"Risks to the global outlook remain tilted decidedly to the downside," it wrote. The lender said its models showed that a further increase of 10 percentage points in average U.S. tariffs, on top of the 10% rate already implemented, and proportional retaliation by other countries, could shave another half of a percentage point off the outlook for 2025.
Such an escalation in trade barriers would result "in global trade seizing up in the second half of this year ... accompanied by a widespread collapse in confidence, surging uncertainty and turmoil in financial markets," the report said.
Nonetheless, it said the risk of a global recession was less than 10%.
'FOG ON A RUNWAY'
Top officials from the U.S. and China are meeting in London this week to try to defuse a trade dispute that has widened from tariffs to restrictions over rare earth minerals, threatening a global supply chain shock and slower growth.
"Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook," World Bank Deputy Chief Economist Ayhan Kose told Reuters in an interview.
But Kose said there were signs of increased dialogue on trade that could help dispel uncertainty, and supply chains were adapting to a new global trade map, not collapsing. Global trade growth could modestly rebound in 2026 to 2.4%, and developments in artificial intelligence could also boost growth, he said.
Source: Reuters