Global growth set for slowest pace since 2008 as trade tensions rise

IOL News

2 days ago

Heightened trade tensions and policy uncertainty are expected to drive global growth down this year to its slowest pace since 2008 outside of outright global recessions, according to the World Bank's latest Global Economic Prospects report.
Image: Leon Lestrade/ Independent Newspapers
The World Bank has warned of economic slowdown as heightened trade tensions and a cloud of policy uncertainty loom over the global economy.
The World Bank's latest Global Economic Prospects report released on Tuesday projected growth to reach its slowest pace since 2008, excluding outright global recessions.
The report highlights a striking trend: growth forecasts have been downgraded in nearly 70% of economies worldwide, spanning all regions and income categories.
The World Bank estimated global growth will decelerate to 2.3% in 2025, a figure that falls short of expectations set just at the beginning of the year.
While a global recession is not on the horizon, the World Bank said if current forecasts materialised, the average global growth throughout the first seven years of the 2020s will be the most sluggish of any decade since the 1960s.
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Indermit Gill, the World Bank Group's chief economist and senior vice president for development economics, underscored the seriousness of the situation.
"Outside of Asia, the developing world is becoming a development-free zone. It has been advertising itself for more than a decade," Gill said.
"Growth in developing economies has ratcheted down for three decades—from 6% annually in the 2000s to 5% in the 2010s—to less than 4% in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5% in the 2000s to about 4.5% in the 2010s—to less than 3% in the 2020s. Investment growth has also slowed, but debt has climbed to record levels."
The forecast is particularly grim for developing economies in 2025, with growth anticipated to slow to an average of 3.8%, significantly less than the 2010s average. Low-income countries are also feeling the pinch, expected to grow by only 5.3% this year—a downgrade from previous forecasts.
Growth in Sub-Saharan Africa is projected to strengthen to 3.7% in 2025 and average 4.2% in 2026-27, assuming the external environment does not deteriorate further, inflation declines as expected, and regional conflicts subside.
However, the bank said risks to the outlook were tilted to the downside as global growth could underperform projections due to heightened uncertainty and potential adverse trade policy changes.
One key concern echoed in the report is the impact of tariff increases and tight labour markets.
Both factors are contributing to upward pressure on global inflation, which is projected to average 2.9% in 2025, remaining firmly above pre-pandemic levels.
This sluggish growth trajectory poses serious challenges for developing countries striving to generate job opportunities, reduce extreme poverty, and narrow the income gap with advanced economies.
Per capita income growth in developing regions is projected at 2.9% in 2025, equivalent to 1.1 percentage points lower than the 2000–2019 average.
Assuming a tempered projection of 4% annual GDP growth for developing economies, exclusive of China, it will take approximately two decades for these nations to return to their pre-pandemic economic output levels.
However, the outlook may not be entirely bleak. The report suggested that global growth could see an uptick if major economies are able to diffuse trade tensions, thereby reducing overall policy uncertainty and financial instability.
It noted that resolving current trade disputes could lead to an average 0.2 percentage point stronger global growth throughout 2025 and 2026.
M. Ayhan Kose, the World Bank's deputy chief economist and director of the Prospects Group, stressed the need for emerging-market and developing economies to pursue new partnerships and focus on pro-growth reforms.
"Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict," Kose said.
"The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.'