Global economic momentum is set to falter, with the World Bank projecting growth of just 2.3 per cent in 2025—its weakest pace since 2008 outside explicit recessions. Elevated trade barriers, particularly rising US tariffs, and widespread policy uncertainty are identified as principal drags, causing forecast downgrades in roughly 70 per cent of the world’s economies.
The Bank’s June Global Economic Prospects report indicates global trade growth will slow to 1.8 per cent in 2025—nearly half the rate seen in 2024, and a fraction of the long‑term average near 5.9 per cent. Inflation is also expected to remain elevated, averaging around 2.9 per cent, fuelled by tighter labour markets and tariff-induced price shocks.
Advanced economies are seeing sharper downward revisions. The US outlook, for example, has been trimmed from earlier estimates, now expected to grow by only 1.4 per cent amid trade volatility and constrained private consumption. The eurozone and Japan are also projected to slow significantly, with growth near 0.7 per cent.
Developing countries continue to feel the strain. Emerging market and developing economies are forecast to grow at 3.8 per cent in 2025, down from 4.1 per cent earlier anticipated. Low‑income nations may manage slightly stronger growth near 5.3 per cent, but this still falls short of levels needed to reverse pandemic setbacks. According to Indermit Gill, the Bank’s chief economist, “Outside of Asia, the developing world is becoming a development‑free zone,” a reflection of three decades of weakening growth patterns.
Financial and political headwinds threaten to compound these challenges. The World Bank warns that an increase in average US tariffs by 10 percentage points, with matching retaliatory measures, could shave up to another 0.5 percentage point from global growth, potentially freezing trade activity in the latter half of the year. Ongoing policy unpredictability continues to cloud investor confidence.
Shock absorption capacity varies by region. East Asia, buoyed by fiscal stimulus and robust output in China, is expected to grow by 4.5 per cent. South Asia anticipates growth near 5.8 per cent despite external risks. In contrast, Latin America, Europe, and Central Asia are forecast to expand at slower rates, between 2.3–2.6 per cent.
The report highlights broader implications for global poverty, debt, and social stability. Developing economies, already grappling with elevated debt burdens and slowed foreign direct investment, may see widened income gaps. By 2027, average per‑capita GDP in developing nations could trail pre‑pandemic forecasts by roughly 6 per cent—requiring decades to recover. Moreover, financial strains threaten to divert resources away from health, education, and social services.
Despite the downturn, conditional policy responses could offer relief. According to Deputy Chief Economist M. Ayhan Kose, a rollback or halving of current tariffs might boost global growth by approximately 0.2 percentage points across 2025–26. He suggests that emerging economies pursue deeper trade integration, fiscal strengthening, and improved business environments to build resilience.
The Bank stresses that multilateral cooperation, clarity in trade policy, and productive investment in human capital and institutions are crucial to reversing the slowdown’s effects. With uncertainty at play, analysts warn further shocks—whether geopolitical, environmental, or financial—could push the global economy into recession.
