Tuesday, June 10, 2025

World Bank: Economy set for worst run since 2008 outside of recessions

(REUTERS) The World Bank is the latest body to cut its growth forecast as a result of Trump's erratic trade policies, although U.S. officials insist the negative consequences will be offset by a surge in investment and still-to-be approved tax cuts.

The World Bank has slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.

In its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70% of all economies - including the United States, China and Europe, and six emerging market regions - from the levels it projected just six months ago before US President Donald Trump took office.

The report forecast that global trade would grow by 1.8% in 2025, down from 3.4% in 2024 and roughly a third of its 5.9% level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10% US tariff on imports from most countries. It excludes increases announced by PresidentTrump in April and then postponed until July 9 to allow for negotiations.

The bank said global inflation was expected to reach 2.9% in 2025, remaining above pre-COVID levels, given tariff increases and tight labor markets.

The bank stopped short of forecasting a recession, but said global economic growth this year would be its weakest outside of a recession since 2008.
By 2027, global gross domestic product growth was expected to average just 2.5%, the slowest pace of any decade since the 1960s.

World Bank slashes global growth forecast as trade tensions bite

By Andrea Shalal

June 10, 20258:29 AM PDT Updated an hour ago

Summary

World Bank warns of potential global trade collapse amid tariff hikes
Advanced economies' growth forecast lowered, poor countries face prolonged recovery
Global inflation expected to reach 2.9% in 2025, above pre-COVID levels

WASHINGTON, June 10 (Reuters) - The World Bank on Tuesday slashed its global growth forecast for 2025 by 0.4 percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.

In its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70% of all economies - including the United States, China and Europe, as well as six emerging market regions - from the levels it projected just six months ago before U.S. President Donald Trump took office.

"Uncertainty remains a powerful drag, like fog on a runway. It slows investment and clouds the outlook,"

---- World Bank Deputy Chief Economist Ayhan Kose told Reuters in an interview.

But he said there were signs of increased dialogue on trade that could help dispel uncertainty, and supply chains were adapting to a new global trade map, not collapsing. Global trade growth could see a modest rebound in 2026 to 2.4%, and developments in artificial intelligence could also boost growth, he said.

"We think that eventually the uncertainty will decline," he said.

"Once the type of fog we have lifts, the trade engine may start running again, but at a slower pace."

Kose said while things could get worse, trade was continuing and China, India and others were still delivering robust growth. Many countries were also discussing new trade partnerships that could pay dividends later, he said.

The World Bank said the global outlook had "deteriorated substantially" since January, mainly due to advanced economies, now seen growing by just 1.2%, down half a point, after expanding 1.7% in 2024.
The US forecast was slashed by 0.9 percentage point from its January forecast to 1.4%, and the 2026 outlook was lowered by 0.4 percentage point to 1.6%.
Rising trade barriers,"record-high uncertainty" and a spike in financial market volatility were expected to weigh on private consumption, trade and investment, it said.

Poor countries would suffer the most, the report said. By 2027 developing economies' per capita GDP would be 6% below pre-pandemic levels, and it could take these countries - minus China - two decades to recoup the economic losses of the 2020s.

Mexico, heavily dependent on trade with the U.S., saw its growth forecast cut by 1.3 percentage points to 0.2% in 2025.

The World Bank left its forecast for China unchanged at 4.5% from January, saying Beijing still had monetary and fiscal space to support its economy and stimulate growth.