World Bank Cuts 2025 Global Growth Forecast to 2.3% Amid Trade Turmoil

The World Bank has lowered its global economic growth forecast for 2025 by 0.4 percentage points, projecting a growth rate of just 2.3%, as outlined in its latest Global Economic Prospects report released on Tuesday. The bank cited "higher tariffs and heightened uncertainty" as significant headwinds affecting nearly every economy worldwide.

Growth Forecasts Reduced Across the Board

The report reflects downgrades for nearly 70% of economies, including major players such as the United States, China, and Europe, along with six emerging market regions. These revisions come just six months after earlier estimates, with the bank now warning that the world is entering a prolonged period of sluggish growth.

"Risks to the global outlook remain tilted decidedly to the downside," the World Bank stated. Although it stopped short of predicting a recession, the 2025 growth rate is expected to be the weakest non-recessionary performance since 2008.

Impact of US Tariffs and Trade Policy

A key driver of the forecast revision is the trade policy uncertainty emanating from the United States. Since taking office, US President Donald Trump has introduced sporadic tariff increases, raising the effective US tariff rate from below 3% to the mid-teens—the highest in nearly 100 years. This has triggered retaliatory actions from China and other trading partners.

The projections in the report are based on tariff rates active as of late May, including a 10% tariff imposed by the US on the majority of imported goods.

Notably, it does not factor in additional tariff hikes announced in April but postponed to July 9 pending further negotiations.

Trade, Inflation and Long-Term Concerns

According to the World Bank, global trade is expected to expand by only 1.8% in 2025, down significantly from 3.4% in 2024 and well below the 5.9% average growth recorded during the 2000s.

Even under current conditions, global growth through 2027 is expected to average only 2.5%, marking the slowest pace in any decade since the 1960s.

The bank also anticipates global inflation to hover at 2.9% in 2025, well above pre-pandemic levels, driven by elevated tariffs and tight labor markets.

If US tariffs were to rise an additional 10 percentage points, with other countries imposing proportional retaliatory measures, global growth in 2025 could fall another 0.5 percentage points, the report warns. Such escalation could result in “global trade seizing up in the second half of this year ... accompanied by a widespread collapse in confidence, surging uncertainty and turmoil in financial markets.”

Despite these risks, the bank maintained that the likelihood of a global recession remains below 10%.

US-China Tensions and Global Supply Chains

High-level trade talks between the United States and China are currently underway in London, aiming to de-escalate tensions that now extend beyond tariffs into rare earth mineral restrictions, risking broader global supply chain disruptions.

"Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook," said World Bank Deputy Chief Economist Ayhan Kose in an interview with Reuters.

Regional Highlights

United States

The US growth outlook for 2025 has been cut by 0.9 percentage points to 1.4%, with the 2026 forecast also lowered to 1.6%. Record-high uncertainty, tighter financial conditions, and slowing investment are cited as contributing factors.

Eurozone and Japan

The euro area is expected to grow at just 0.7%, down 0.3 percentage points, while Japan's forecast was reduced by 0.5 percentage points to the same level.

Emerging Markets

Emerging markets and developing economies are projected to grow by 3.8% in 2025, slightly lower than January’s 4.1% forecast. Mexico, which relies heavily on US trade, saw its forecast slashed by 1.3 percentage points to 0.2%.

China

Interestingly, China’s outlook remains unchanged at 4.5%, as the country retains the policy space to support growth through fiscal and monetary tools.

By 2027, the report warns that developing countries (excluding China) will still be 6% below their pre-COVID per capita GDP, potentially taking two decades to fully recover from the economic blows of the 2020s.

Looking Ahead: Hope for Recovery

Despite the grim forecast, the bank notes potential tailwinds such as advancements in artificial intelligence, new trade partnerships, and improved global dialogue that may support a slow rebound. Global trade growth is expected to see a modest recovery in 2026, reaching 2.4%.

"We think that eventually the uncertainty will decline," Kose added. "Once the type of fog we have lifts, the trade engine may start running again, but at a slower pace."

Conclusion

The World Bank’s latest economic outlook underscores the fragile state of the global economy, heavily influenced by rising tariffs, unstable trade policies, and heightened uncertainty. With advanced economies slowing down and emerging markets under pressure, the forecast signals a challenging path ahead—especially for developing nations striving to recover from the pandemic-era losses.

Yet, the possibility of a modest recovery driven by innovation and new trade agreements offers a glimmer of hope. As nations navigate this complex global landscape, transparency, dialogue, and policy coordination will be key to restoring sustainable economic momentum.