WASHINGTON: The global economy is facing significant headwinds as growth is projected to slow to 2.3% in 2025, the weakest pace since 2008 outside of outright recessions, according to the World Bank’s latest Global Economic Prospects report released Wednesday. The slowdown is driven by escalating trade barriers, heightened policy uncertainty, and financial market volatility, with emerging market and developing economies (EMDEs) bearing the brunt of the downturn.
Key Findings from the Report
1. Global Growth Slows Amid Trade Wars
- 2025 Forecast: Global growth is expected to decelerate to 2.3%, down from 2.8% in 2024, marking the slowest expansion in 17 years outside recession periods.
- Advanced Economies: Growth in high-income nations is projected at 1.2%, with the U.S. slowing to 1.4% and the euro area to 0.7%.
- Emerging Markets: EMDE growth will weaken to 3.8%, with China’s expansion easing to 4.5% due to trade tensions and a property sector slump.
2. Rising Trade Barriers and Uncertainty
- The U.S. has imposed tariffs at levels not seen in nearly a century, triggering retaliatory measures and disrupting global supply chains.
- Trade Growth: Global trade volume growth is forecast to drop to 1.8% in 2025, down from 3.4% in 2024.
- Commodity Prices: Energy prices are expected to fall 15% this year, while metals and agriculture markets face volatility.
3. Inflation and Financial Market Strains
- Inflation Risks: Tariffs could push prices higher in advanced economies, while weaker demand may curb inflation in EMDEs.
- Financial Volatility: Emerging markets face tighter financial conditions, with sovereign bond spreads rising for trade-exposed nations.
4. Regional Divergences
- East Asia & Pacific: Growth slows to 4.5%, weighed down by China’s slowdown.
- Latin America & Caribbean: The weakest EMDE region at 2.3%, hurt by U.S. trade policies.
- Sub-Saharan Africa: Growth edges up to 3.7%, but conflict and debt distress persist.
5. Long-Term Challenges
- Per Capita Income: EMDEs outside China and India will see stagnant income convergence with advanced economies.
- Poverty & Conflict: Extreme poverty remains elevated, with fragile states like Sudan and South Sudan facing severe contractions.
Policy Recommendations
The World Bank urges:
- Rebuilding Trade Relations: Resolving disputes and lowering tariffs to revive global commerce.
- Fiscal Reforms: EMDEs must boost revenue collection and prioritize spending to manage debt.
- Job Creation: Rapid population growth in Africa and South Asia demands urgent labor market reforms.
Risks Ahead
- Downside Scenarios: Further trade escalation could cut global growth by 0.5 percentage points.
- Upside Potential: Successful trade negotiations could add 0.3 percentage points to growth.
“The world economy is at an inflection point,” said Indermit Gill, World Bank Chief Economist. “Without decisive action, the progress made in reducing poverty over decades could unravel.”
The report underscores the urgent need for global cooperation to stabilize trade, support vulnerable economies, and address climate-related risks.