The World Bank has slashed its global growth forecast, warning that President Donald Trump’s tariffs and the resulting political uncertainty are dragging the world economy to its weakest non-recessionary pace since 2008.
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In a detailed report released Tuesday, the Bank projected global GDP growth will slow to just 2.3% in 2025, a sharp downgrade from January’s 2.7% estimate. That suggests the ongoing trade wars are exerting a 20% drag on the global economy.
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The outlook is especially bleak for emerging markets and developing economies (EMDEs), with the Bank suggesting that income gaps with richer nations will widen further. Already, foreign direct investment into these economies has fallen to less than half its 2008 peak, with little sign of recovery.
“Downside risks to the outlook predominate,” as a summary of the report dryly puts it. Trade barriers appear to be becoming more entrenched and intractable, not less, all while policy direction remains uncertain and the economic damage racks up.
The timing is poignant
Released as U.S.-China trade talks enter their second day in London, the World Bank’s report reflects an urgent hope that these global powers can contain and negotiate their economic conflicts.
“If trade restrictions escalate or policy uncertainty persists,” the authors warn, “global growth could be even weaker.”
The World Bank also flagged risks from extreme weather and inflation, especially for countries already dealing with debt distress and weakened or fragile institutions.
Slowing growth across the board, but the U.S. is hit hardest
Regional downgrades – that is, revisions to the Bank’s growth forecasts – were broad-based and sweeping. Growth is expected to slow across East Asia, South Asia, Europe, and Latin America. However, the report singles out the U.S. as the most negatively affected economy in terms of slowing growth, echoing OECD projections released last week.
In response, the Bank is urging coordinated, multilateral action to create greater policy certainty and boost investment in human capital, labor markets, and the quality of national and international institutions. “On the upside, uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions,” according to the report.
But today, with the London talks so far inconclusive, it’s unclear if the World’s Bank call will be heeded – no matter how urgent it may be.
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Catherine Baab