World Bank Cuts Global Growth Forecast for 2025 Citing Trade Tensions

On June 10, 2025, the World Bank announced a downward revision of its global economic growth forecast for 2025, reducing it from 2.7% to 2.3%. This adjustment is primarily attributed to escalating trade tensions and the implementation of higher tariffs, notably under President Donald Trump's administration. These trade policies have disrupted global trade, leading to retaliatory measures and increased economic uncertainty.

The report indicates that nearly 70% of countries, including major economies like the United States, China, and European nations, have experienced reductions in their growth projections. Specifically, the U.S. economy is now expected to grow at a rate of 1.4%, half the pace of 2024, while China's growth outlook remains steady at 4.5%, supported by available policy tools. Global trade growth is projected to slow to 1.8% in 2025, and inflation is anticipated to remain elevated at 2.9%. Despite these challenges, the World Bank assesses the risk of a global recession as low, under 10%. However, the overall global GDP growth through 2027 is expected to average just 2.5%, marking the slowest rate since the 1960s.

Since the commencement of President Trump's second term, the administration has pursued a policy of economic autonomy and trade protectionism. This approach has involved enacting a series of steep protectionist tariffs against nearly every country, raising the United States' effective tariff rate from 2.5% to 27% by April 2025. In March 2025, the U.S. initiated a trade war with Canada and Mexico by imposing near-universal tariffs of 25% against both countries. These actions have heightened tensions in the ongoing U.S.-China trade war, as higher tariff rates were introduced, leading to stock market instability and raising fears of a possible recession.

The World Bank's report indicates that nearly 70% of countries, including major economies like the United States, China, and European nations, have experienced reductions in their growth projections. Specifically:

• United States: The U.S. economy is now expected to grow at a rate of 1.4% in 2025, half the pace of 2024.

• China: China's growth outlook remains steady at 4.5%, supported by available policy tools.

• Europe: European growth is forecasted at a mere 0.7%.

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

• Japan: Japan's growth is forecast to increase marginally to 0.7%.

Global trade growth is projected to slow to 1.8% in 2025, a significant decline from 3.4% in 2024. Inflation is anticipated to remain elevated at 2.9%. Despite these challenges, the World Bank assesses the risk of a global recession as low, under 10%. However, the overall global GDP growth through 2027 is expected to average just 2.5%, marking the slowest rate since the 1960s.

The downward revision of global economic growth has several social and societal implications:

• Employment: Slower economic growth may lead to reduced job creation and potential increases in unemployment rates, affecting livelihoods globally.

• Consumer Prices: Higher tariffs can lead to increased costs for imported goods, resulting in higher consumer prices and reduced purchasing power.

• Business Uncertainty: The unpredictability of trade policies and potential retaliatory measures create an uncertain environment for businesses, potentially leading to reduced investments and economic stagnation.

The current economic slowdown is reminiscent of previous periods of heightened protectionism and trade wars, such as the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression. However, the global economy today is more interconnected, making the impacts of such policies more widespread and complex.

In response to these challenges, the World Bank emphasizes the need for renewed commitment to global cooperation among major powers. Developing countries are encouraged to pursue liberal trade policies and create investment-friendly environments. International organizations like the World Trade Organization are urged to play a proactive role in mitigating trade disputes and fostering a stable global economic environment.

The World Bank's revised forecast serves as a stark reminder of the far-reaching consequences of escalating trade tensions and protectionist policies. Without prompt policy adjustments and a commitment to international cooperation, the global economy risks prolonged stagnation, with significant implications for employment, consumer prices, and overall economic stability.