World Bank Significantly Downgrades Global Growth Forecast Amid Escalating Trade Tensions

On June 10, the World Bank released its latest Global Economic Prospects report, highlighting that increasing uncertainty and elevated tariff levels are imposing substantial constraints on economic growth across most countries. As a result, the institution has sharply revised its global GDP growth forecast for 2025 down to 2.3%. The new forecast represents a 0.4 percentage point decrease from the estimate made earlier this year. For 2024, the global GDP growth rate is projected at 2.8%.

Since Donald Trump assumed office, the effective tariff rate in the United States has increased from below 3% to nearly 15%, marking the highest level in nearly a century and contributing significantly to the deterioration of global trade relations. The World Bank joins other institutions in lowering growth projections due to the unpredictable nature of U.S. trade policy. Nonetheless, American officials continue to argue that increased investment and forthcoming tax cuts will offset adverse impacts.

Although a global recession is not anticipated, the World Bank expects global growth to remain subdued. Excluding the pandemic-affected year of 2020, the projected expansion would be the slowest since the global financial crisis. Global trade is forecast to grow by 1.8% in 2025, down from 3.4% in 2024. This projection is based on tariffs effective through the end of May, including a 10% baseline U.S. import tariff, while excluding suspended reciprocal tariffs.

According to the report’s economic models, if the U.S. increases its average tariff rate by an additional 10 percentage points and other countries respond in kind, global GDP growth in 2025 could decline by a further 0.5 percentage points. The report warns that an escalation in the tariff conflict may stall global trade in the second half of this year, triggering a collapse in market confidence, heightened uncertainty, and volatility in financial markets. However, the probability of a global recession remains under 10%.

Ayhan Kose, Deputy Chief Economist of the World Bank, emphasized that uncertainty continues to weigh heavily on the outlook, likening it to "fog on the runway" that slows investment and clouds projections. Still, Kose acknowledged signs of improving dialogue on trade and noted that global supply chains are adjusting to the evolving trade environment. He added that global trade could see a modest recovery to 2.4% in 2026, with developments in artificial intelligence potentially contributing to growth.

“We anticipate that uncertainty will eventually recede. Once clarity returns, trade activity could resume, albeit at a slower pace,” he said. Among developed economies, the United States is now expected to grow by 1.4% in 2025, revised down from the 2.3% forecast in January. The forecast for the Eurozone stands at 0.7% for 2024, while Japan’s growth is projected at 0.4%.

Emerging markets and developing economies are collectively expected to expand by 3.8% this year, lower than the 4.1% projection made in January. In particular, Mexico, which is highly dependent on trade with the U.S., has had its 2025 growth forecast reduced by 1.3 percentage points to 0.2%.