US tariffs will result in shock to global growth but not recession, World Bank says

Irish Times

a day ago

US trade tariffs
will result in a major slowdown in global growth but not a recession, the
World Bank
has said.
In its latest Global Economic Prospects report, the Washington-based institution said that heightened trade tensions and wider policy uncertainty would drive global growth down this year 'to its slowest pace since 2008 outside of outright global recessions'.
It noted that the turmoil had resulted in growth forecasts being cut in nearly 70 per cent of economies.
US president Donald Trump's
on-off tariff threats have sent shockwaves through the global economy with investment and consumption stalling in the face of uncertain US trade policy.
READ MORE
The World Bank said it expected global growth to slow to 2.3 per cent in 2025, nearly half a percentage point lower than the rate that had been expected at the start of the year.
However it said a global recession was not expected.
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'Nevertheless, if forecasts for the next two years materialise, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s,' it said.
The bank also warned that tariff increases and tight labour markets were 'also exerting upward pressure' on global inflation, which, at a projected average of 2.9 per cent in 2025, remains above pre-pandemic levels.
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Without referencing Mr Trump directly, the bank said the outlook largely hinged on the evolution of trade policy globally.
Growth could turn out to be lower if trade restrictions escalate and policy uncertainty persists, it said.
'Other downside risks include weaker-than-expected growth in major economies with adverse global spillovers, worsening conflicts, and extreme weather events,' it said
Conversely uncertainty and trade barriers could 'diminish' if major economies reach lasting agreements.
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'The analysis finds that if today's trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026,' it said.
The European Union (EU) is currently negotiating with Washington to reduce the impact of existing and incoming tariffs on EU exports to the US.
'Outside of Asia, the developing world is becoming a development-free zone,' said Indermit Gill, the World Bank's chief economist.
'It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades – from 6 per cent annually in the 2000s to 5 per cent in the 2010s – to less than 4 per cent in the 2020s,' he said.
'That tracks the trajectory of growth in global trade, which has fallen from an average of 5 per cent in the 2000s to about 4.5 per cent in the 2010s – to less than 3 per cent in the 2020s,' he said.
'Investment growth has also slowed, but debt has climbed to record levels,' he said.