The World Bank has significantly reduced its global growth forecast for 2025, lowering it by 0.4 percentage points to 2.3%. This adjustment reflects the impact of escalating trade tensions and increased tariffs, which present substantial challenges for economies worldwide. In its latest Global Economic Prospects report released on Tuesday, the bank revised growth projections for nearly 70% of all economies, including major players like the United States, China, and various European nations. The U.S. has seen its tariff rates rise sharply under President Donald Trump’s administration, increasing from below 3% to around 15%, the highest in almost a century.
This has led to retaliatory measures from China and other nations. While U.S. officials claim that these negative repercussions will be mitigated by a rise in investments and prospective tax cuts, the World Bank warns that economic growth in 2023 will be the weakest outside of a recession since 2008. It anticipates that global GDP growth will average only 2.5% by 2027, marking the slowest pace since the 1960s. The report further predicts that global trade growth will slow to 1.8% in 2025, a stark decline from 3.4% in 2024.
Risks to this outlook remain weighted toward the downside, particularly with the potential for additional U.S. tariff hikes. A more extreme rise in tariffs could further obstruct trade and lead to significant instability in financial markets. In mitigating circumstances, the World Bank’s Deputy Chief Economist, Ayhan Kose, emphasized the ongoing dialogue between U.S. and Chinese officials aimed at easing these tensions. Despite the negativity surrounding trade, there are observable signs of continued economic activity, particularly in countries like China and India, that could foster future growth opportunities.
However, the report underscores that developing nations will bear the brunt of these economic challenges, with many projected to experience prolonged economic setbacks.