The World Bank has cut its global growth forecast for 2025, warning that rising trade barriers, tariff hikes, and mounting geopolitical uncertainty are dragging the world economy into a dangerous slowdown
The World Bank has sharply downgraded its global growth forecast for 2025—from 2.7% to just 2.3%—warning that escalating trade protections and persistent economic uncertainty are acting as powerful brakes on the world economy. The prognosis was unveiled in the Bank’s mid-year Global Economic Prospects report on June 10, covering nearly every major economy, from the United States and China to Europe and emerging markets.
Major Economies Under Pressure
United States: Growth for 2025 is now projected at just 1.4%, down from previous estimates, the lowest non-recession rate since the global financial crisis. The drop is largely attributed to widespread tariff hikes—now averaging mid-teens across many categories—and retaliatory measures from trading partners.
China: The bank left its 2025 outlook at 4.5%, with potential support from monetary and fiscal policy, though growth is still under strain. A slowing property market and demographic challenges add to fragility.
Europe and Japan: The eurozone’s forecast was cut to 0.7%, while Japan is also pegged at a modest 0.7%, highlighting broad weakness in mature economies.
Global Trade and Inflation Hit
Trade growth—a key driver of global prosperity—is set to slump to just 1.8% in 2025, far below its prior average of around 5.9% during the 2000s. The Bank emphasised that if U.S. tariffs were further increased by 10 percentage points—on top of the existing 10% average—and met with retaliatory tariffs, global GDP growth could fall by an additional 0.5 percentage point. While a global recession isn’t currently forecast, the downside risks are substantial.
Inflation remains elevated as well, at around 2.9% for 2025, a pace higher than pre-pandemic norms, driven by trade barriers and labour market tightness.
Approximately 70% of the world’s economies—including six regional emerging market groups—had their growth forecasts reduced.
Emerging markets are now expected to grow at about 3.8% in 2025, down from earlier forecasts of 4.1%. Among these, low-income countries face particularly steep hurdles, with percapita output still lagging behind pre-pandemic trends, and potentially requiring up to two decades to recover.
The report warned the current decade could mark the slowest period of post-war growth since the 1960s. Average annual GDP growth from 2020 through 2027 is projected at just 2.5%, a historical low.
Policy Measures and Risks
World Bank economists cautioned that policy uncertainty is deterring investment and weighing on economic confidence. However, they noted signs of diplomatic thaw, including increased talks between the U.S. and China. A decline in economic “fog” could brighten trade and growth prospects.
The report urged governments to roll back trade barriers—suggesting halving current tariffs could bolster global growth by around 0.2 percentage points over 2025–26. Simultaneously, countries need to manage inflation, entrench fiscal stability, and invest in human capital and institutional resilience.
U.S. officials responded emphatically. A White House spokesperson termed the report “untethered to the data,” pointing to strong earlyyear investment, rising real incomes, and healthy employment numbers. Still, economists warn that even robust domestic results may not fully offset the drag from escalating trade barriers and global uncertainty.
What It Means Going Forward
Trade: The Bank painted a picture of global trade “seizing up” if tariffs rise significantly, potentially triggering a crisis in market confidence and financial markets.
Recession risk: Although still under 10%, the risk of entering a full global recession is rising.
Global outlook: Recovery in 2026 and 2027 is expected to be modest—a “tepid” rebound—unless policymakers act quickly to reduce trade tensions.
In sum, the World Bank is urging swift, coordinated action to address growing barriers to trade and policy uncertainty. Without intervention, the consequences—spanning low growth, persistent inflation, and weakened global development—could echo well beyond 2025, shaping a challenging decade ahead.
