World Bank Slashes 2025 Global Growth Forecast Amid Tariffs, Trade Uncertainty.
The World Bank on Tuesday sharply downgraded its global growth forecast for 2025, citing escalating trade barriers and mounting uncertainty as major headwinds facing the world economy.
In its latest Global Economic Prospects report, the Bank revised its growth projection down by 0.4 percentage point to 2.3%—the weakest expansion outside a global recession since 2008. The slowdown is attributed to higher tariffs, particularly those introduced under the administration of former US President Donald Trump, and the destabilizing impact of unpredictable trade policies.
The Bank said it had lowered growth estimates for nearly 70% of all economies—including major players like the US, China, and the EU—as well as six emerging market regions, compared to its January 2025 outlook.
Tariffs at Century-High Levels
The report highlights how Trump’s aggressive use of tariffs—some introduced under the International Emergency Economic Powers Act—has dramatically raised the effective US tariff rate from below 3% to the mid-teens, the highest level in nearly a century. These tariffs, often deployed with little warning, have prompted retaliatory measures from countries like China and have unsettled businesses worldwide.
While the World Bank did not forecast a full-scale recession, it warned that global GDP growth through 2027 is expected to average just 2.5% annually—making the 2020s the slowest decade of growth since the 1960s.
Global Trade Slowing Sharply
According to the report, global trade is projected to grow by just 1.8% in 2025—down from 3.4% in 2024 and far below the 5.9% average of the 2000s. The forecasts are based on tariffs in place as of late May and exclude additional hikes announced by Trump in April, which were postponed until July 9.
The World Bank also expects global inflation to remain elevated at 2.9% in 2025, fueled by tariff increases and tight labor markets.
“Risks to the global outlook remain tilted decidedly to the downside,” the Bank cautioned. It warned that if the US imposes an additional 10-percentage-point increase in tariffs—and other nations retaliate accordingly—it could shave another 0.5 percentage point off 2025 growth and lead to a collapse in confidence and financial market turmoil.
Trade Talks, Fog of Uncertainty
Top US and Chinese officials are meeting in London this week to address an expanding trade dispute that now includes critical minerals. The standoff threatens to deepen supply chain shocks and stall global growth further.
“Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook,” said Ayhan Kose, the World Bank’s Deputy Chief Economist, in an interview with Reuters. However, he noted that global trade is not collapsing and supply chains are adapting, with trade growth possibly rebounding to 2.4% in 2026.
Regional and Country-Specific Outlooks
United States: The US economy is now forecast to grow just 1.4% in 2025—down 0.9 percentage point from January’s outlook—with a further slowdown to 1.6% expected in 2026.
Europe and Japan: Growth in the eurozone and Japan has been cut to 0.7% for both.
Emerging Markets: Growth expectations for emerging and developing economies have been reduced to 3.8% from 4.1%.
Mexico: Hit hard by its trade exposure to the US, Mexico’s 2025 growth forecast has been slashed by 1.3 points to a mere 0.2%.
China: China’s projection remains steady at 4.5%, with the Bank citing available monetary and fiscal tools to stabilize its economy.
The report concludes that the poorest countries will bear the brunt of the global slowdown. Excluding China, developing nations may take up to two decades to recover the losses suffered during the pandemic and post-pandemic shocks.
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