Greater trade tensions and policy uncertainty are expected to drive global growth to its slowest pace since 2008 outside of recessions, according to the World Bank’s new Global Economic Prospects report.
The global economy is facing substantial headwinds, mainly as a result of an increase in trade tensions and heightened global policy uncertainty, according to the World Bank’s latest Global Economic Prospects report. For emerging market and developing economies (EMDEs), the weak outlook limits their ability to boost job creation and reduce extreme poverty, says the report. This challenging context is compounded by subdued foreign direct investment into EMDEs.
The bank says that more global cooperation is needed to restore a more stable global trade environment and scale up support for vulnerable countries, including those in fragile and conflict situations. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To unlock job creation and long-term growth, reforms should focus on raising institutional quality, attracting private investment and strengthening human capital and labour markets.
After a succession of adverse shocks in recent years, the global economy is being buffeted by increased trade tensions and heightened policy uncertainty which are contributing to a deterioration in prospects across most of the world’s economies. Growth is expected to weaken to 2.3% in 2025, with deceleration in most economies relative to last year. This would mark the slowest rate of global growth since 2008, aside from outright global recessions.
In 2026-27, a tepid recovery is expected, leaving global output materially below January projections. Progress by emerging market and developing economies in closing per capita income gaps with advanced economies and reducing extreme poverty is anticipated to remain insufficient. The outlook outlined in the report largely hinges on the evolution of trade policy globally. Growth could turn out to be lower if trade restrictions escalate or if policy uncertainty persists, which could also result in a build-up of financial stress. Other downside risks include weaker-than-expected growth in major economies with adverse global spillovers, worsening conflicts, and extreme weather events.
Commenting in the foreword to the Global Economic Prospects report, Indermit Gill, senior vice president and chief economist at The World Bank Group, said: “The global economy today is at an inflection point. The forces that once drove economic convergence and lifted billions out of poverty are now in retreat. But this moment offers a chance to reset the agenda – with renewed global cooperation, restored fiscal responsibility, and a relentless focus on creating jobs. With decisive action, governments across the world can still regain the momentum of poverty reduction and deliver rising living standards for the next generation.
Click here to download the latest World Bank Global Economic Prospects report.
