World Bank Lowers 2025 Growth Forecast as Trade Tensions Escalate

The World Bank has revised its global economic growth forecast for 2025, lowering it from 2.7% to 2.3%, citing escalating trade tensions and increased tariffs as primary factors hindering economic expansion worldwide. This adjustment reflects a broader trend of economic deceleration, with nearly 70% of countries, including major economies such as the United States, China, and European nations, experiencing reduced growth projections.

The report attributes the deteriorating outlook primarily to the United States' recent tariff increases under President Donald Trump. In February 2025, the Trump administration imposed a 25% tariff on all imports from Mexico and Canada, with Canadian energy resources facing a lower 10% tariff. Additionally, a 10% tariff was levied on Chinese goods, adding to existing tariffs of up to 25% on many Chinese products. These measures, enacted under the International Emergency Economic Powers Act (IEEPA), have disrupted global trade and provoked retaliatory actions from affected nations.

The World Bank's report highlights several key economic implications resulting from these intensified trade tensions:

• Global Growth Slowdown: The revised global growth forecast of 2.3% for 2025 represents a significant slowdown, with projections through 2027 averaging just 2.5%, the slowest rate since the 1960s.

• Trade Disruptions: Global trade growth is projected to slow to 1.8% in 2025, reflecting the impact of increased tariffs and retaliatory measures among major economies.

• Inflationary Pressures: Inflation is expected to remain elevated at 2.9% in 2025, above pre-COVID levels, due to higher import costs and supply chain disruptions.

• Investment Uncertainty: Heightened uncertainty is dampening investment and market confidence, as businesses grapple with unpredictable trade policies and potential retaliatory actions.

Regionally, the report provides specific growth projections:

• United States: Growth is predicted to slow to 1.4% in 2025, half the rate of 2024, reflecting the impact of increased tariffs and trade tensions.

• China: Growth is expected to slow to 4.5% in 2025, influenced by tariffs, a weakened real estate market, and demographic challenges.

• Europe: Growth is forecasted at a mere 0.7%, indicating significant economic challenges amid trade disruptions.

• India: Remains the fastest-growing major economy at 6.3%, though slightly below previous projections.

• Japan: Growth is forecast to increase marginally to 0.7%.

Despite these challenges, the risk of a global recession remains low, under 10%. However, the World Bank emphasizes that heightened uncertainty is dampening investment and market confidence. In response to the report, the White House contends that recent robust U.S. economic indicators contradict the pessimistic forecast.

The economic slowdown and trade tensions have several social and societal implications:

• Employment: Increased tariffs and trade disruptions can lead to job losses in industries reliant on international trade, affecting workers and communities.

• Consumer Prices: Higher tariffs often result in increased prices for imported goods, impacting consumers' purchasing power and potentially leading to inflationary pressures.

• Business Uncertainty: Companies face challenges in planning and investment due to unpredictable trade policies, which can hinder economic growth and innovation.

The current trade tensions and economic challenges are reminiscent of previous periods of protectionism and trade wars, such as the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression. However, the global economy is now more interconnected, making the potential impacts of trade disputes more widespread and complex.

In response to the escalating trade tensions, the United States Court of International Trade ruled on May 28, 2025, that President Trump had overstepped his authority in imposing most of these tariffs, blocking them from going into effect. This legal intervention underscores the contentious nature of the current trade policies and their far-reaching implications.

As the global economy navigates these turbulent times, the World Bank's report serves as a critical reminder of the interconnectedness of international trade and the potential consequences of protectionist policies. Policymakers worldwide are urged to consider the broader implications of trade measures and to seek collaborative solutions to foster economic stability and growth.