World Bank cuts global growth forecast amid trade tensions, warns of deepening uncertainty

The World Bank has lowered its global growth forecast for 2025 to 2.3%, down 0.4 percentage points from earlier estimates, warning that escalating trade tensions and tariff hikes are clouding the global economic outlook.

In its latest Global Economic Prospects report, the Bank cautioned that nearly 70% of economies, including U.S., China, and Europe, will experience weaker-than-expected growth. It attributed the downturn largely to President Donald Trump’s aggressive trade policies, which have pushed the U.S. tariff rate to its highest level in nearly 100 years and triggered retaliatory measures from trading partners.

Global Trade and Inflation Outlook

Global trade growth is expected to slow to 1.8% in 2025, down from 3.4% in 2024.

Inflation is forecast at 2.9% in 2025, still above pre-pandemic levels.

A further 10-point tariff hike and proportional retaliation could cost the global economy an additional 0.5% of growth, the Bank warned.

“Risks to the global outlook remain tilted decidedly to the downside,” the Bank said, citing the threat of a "global trade collapse" and "surging uncertainty".

Despite these concerns, the report stopped short of predicting a recession, pegging the risk of a global downturn at less than 10%.

Economic Forecasts by Region

U.S.: 2025 forecast slashed to 1.4%, down 0.9 points from January. 2026 outlook also lowered.

Eurozone: Forecast cut to 0.7% (-0.3 points).

Japan: Also down to 0.7% (-0.5 points).

Emerging markets: Expected to grow 3.8%, down from 4.1%.

China: Growth held at 4.5%, with the Bank citing Beijing’s capacity for policy support.

Mexico: Forecast sharply downgraded to 0.2%, due to reliance on U.S. trade.

White House Pushes Back

The White House disputed the World Bank’s assessment, pointing to strong domestic indicators. Spokesperson Kush Desai cited:

A 25% surge in business investment in Q1.

0.7% monthly growth in real disposable income in April.

Three consecutive strong jobs and inflation reports.

He said ongoing legislative efforts—including tax relief—would “turbo-charge America’s economic resurgence under President Trump.”

Outlook Beyond 2025

Global growth through 2027 is projected to average just 2.5%, the slowest for any decade since the 1960s.

Per capita GDP in developing countries (excluding China) is expected to remain 6% below pre-pandemic levels in 2027.

The Bank warned it could take two decades for poorer nations to recover from the economic blows of the 2020s.

Despite near-term turbulence, World Bank Deputy Chief Economist Ayhan Kose expressed cautious optimism, noting signs of increased trade dialogue and Artificial Intelligence-driven growth potential.

“Once the fog lifts, the trade engine may start running again, but at a slower pace,” Kose said.

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