World Bank slashes global growth forecasts amid trade tariffs, economic uncertainty
The World Bank has slashed global growth forecasts for 2025, blaming tariffs and heightened uncertainty for some of the weakest economic conditions since the 2008 global financial crisis.
In its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70 per cent of all economies, including the United States and Europe.
It also downgraded growth for six emerging market regions from the levels it projected just six months ago — before US President Donald Trump took office.
The projections factored in some of the the Trump administration's latest tariff policies, which have up-ended global trade and prompted significant business uncertainty.
A series of on-again, off-again tariff hikes have increased the effective US tariff rate from below 3 per cent to the mid-teens — its highest level in almost a century — and triggered retaliation by China and other countries.
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 (GDP) growth was expected to average just 2.5 per cent, the slowest pace of any decade since the 1960s.
The World Bank's downgrade follows on from a similar move by the International Monetary Fund in April.
At the time, the IMF said Australia's economic growth would be impacted and also warned of "upward revisions" to inflation in the US and other major western economies.
The World Bank's latest forecast, released on Monday, showed economic growth in Australia's largest trading partner — China — was expected to slow to 4.5 per cent in 2025 and 4 per cent in 2026.
"This is in line with the January forecast, reflecting the impacts of higher US tariffs and slower growth in major advanced economies, which are assumed to be offset by the announced fiscal policy support measures," the report said.
It also noted that "in regions with a large number of commodity exporters … growth is expected to face drags from weakening outlook for external commodity demand".
The report forecast that global trade would grow by 1.8 per cent in 2025, down from 3.4 per cent in 2024 and roughly a third of its 5.9 per cent level in the 2000s.
The bank said global inflation was expected to reach 2.9 per cent in 2025, remaining above pre-COVID levels, given tariff increases and tight labour markets.
The World Bank did not provide a projection for Australia, but the latest Australian Bureau of Statistics figures released last week showed domestic economic growth slowed to just 0.2 per cent in the March quarter.
The US GDP forecast was slashed by 0.9 percentage points from its January forecast to 1.4 per cent, and the 2026 outlook was lowered by 0.4 percentage point to 1.6 per cent.
Europe's economy could expect only a 0.7 per cent expansion in 2025.
"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 the report warned poor countries would suffer the most, with developing economies likely to be 6 per cent smaller in 2027 than they were before the COVID-19 pandemic.
It could take these countries — minus China — two decades to recoup the economic losses of the 2020s.
ABC/Reuters
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