The World Bank has issued a stark warning, slashing its global economic growth forecast for 2025 to just 2.3% as trade tensions escalate and policy uncertainty persists.
Global Growth Forecast Slashed
This latest projection marks a sharp decline, dropping nearly half a percentage point from the bank’s earlier estimate at the year’s start.
Should this forecast hold, it would signal the weakest non-recessionary global growth since the 2008 financial crisis, a troubling indicator of mounting economic strain.
The World Bank report reveals that nearly 70% of economies worldwide, across all regions and income levels, have seen their growth forecasts downgraded amid this turmoil.
Developing Economies Face Deepening Stagnation
While a full-blown global recession isn’t on the horizon, the bank cautions that average growth from 2020 to 2027 could be the slowest since the 1960s if current trends persist.
Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice-President for Development Economics, sounded the alarm, declaring, “Outside of Asia, the developing world is becoming a development-free zone. It has been advertising itself for more than a decade.”
The report highlights a steady decline in developing economies, with growth sliding from 6% annually in the 2000s to 5% in the 2010s, and projected to fall below 4% in the 2020s.
Trade Slowdown and Rising Debt Exacerbate Challenges
This economic downturn aligns with a sharp drop in global trade growth, shrinking from 5% in the 2000s to under 3% today, alongside weakened investment and soaring debt levels.
The World Bank predicts that nearly 60% of developing economies will experience slower growth in 2025, averaging just 3.8%, with a modest rebound to 3.9% in 2026 and 2027.
Low-income countries face a particularly grim outlook, with growth expected to hit 5.3% in 2025—a 0.4 percentage point cut from prior forecasts—deepening the plight of the world’s poorest nations.
Inflation Remains Elevated Amid Tariff Hikes
Tariff increases and tight labor markets are set to keep global inflation stubbornly high, averaging 2.9% in 2025, well above pre-pandemic norms, the World Bank warns.
Long-Term Impact on Poverty and Inequality
This prolonged slowdown threatens to derail progress in developing economies, stalling job creation, poverty reduction, and efforts to close the income gap with advanced nations.
Per capita income growth in these countries is projected at a mere 2.9% in 2025, lagging 1.1 percentage points below the 2000–2019 average, a stark sign of worsening conditions.
Excluding China, the World Bank estimates that developing nations maintaining a 4% GDP growth rate through 2027 would need roughly two decades to recover their pre-pandemic trajectory.
Potential for Recovery if Trade Tensions Ease
On a hopeful note, the report suggests that easing trade disputes among major economies could lift global growth by 0.2 percentage points across 2025 and 2026 if tariffs are halved.
Recommendations for Developing Economies
To counter rising protectionism, the World Bank advises developing nations to diversify trade partnerships, forge strategic alliances, and tap into regional trade agreements.
With public resources stretched thin, policymakers must prioritize domestic revenue collection, safeguard vulnerable populations through targeted spending, and strengthen fiscal management.
Sustainable growth hinges on improving business climates, boosting productive employment, and aligning workforce skills with market needs, the report stresses.
Call for Global Cooperation
The World Bank concludes with a powerful call for global unity, urging multilateral efforts, concessional financing, and tailored relief to bolster the most vulnerable economies battered by conflict and instability.
