Trump-induced slowdown: Can it be reversed?
The World Bank has lowered global economic growth to 2.3% for 2025. This is 40 basis points less than its January estimate. Mint looks at the factors causing the slowdown, corrective measures that need to be taken and chances of implementing them to accelerate growth.
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How sharp is the slowdown?
In 2024, the global economy grew at 2.8%. In January, the World Bank projected 2025 growth at 2.7%. But that looks very distant now. On Tuesday, in its latest economic outlook, it sharply downgraded the growth projection for 2025 to 2.3%. The slowdown has been all-pervasive with 70% of all economies seeing a reduction in growth. Also, the projected growth rate will be the slowest in the last 17 years, if outright global recession is not considered. Between 2020 and 2027, the World Bank said that global economic growth will average 2.5%—the slowest pace since the 1960s.
What is causing the slowdown?
Escalating trade tensions and policy uncertainty are the two major factors behind the projected economic slowdown. US President Donald Trump's tariff measures have upended the global trading system. Since the start of his second term as President in January this year, he has been imposing significant tariffs hikes on US trade partners in a bid to reduce America's trade deficit and protect the local industry. Though his `liberation day' tariffs have been kept in abeyance, the average tariff rates of the US are still high. His policy flip-flops have added to the policy uncertainty and hurt investment.
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What is the outlook for India?
India is expected to grow at 6.3% in 2025-26. This is 40 basis points lower than the 6.7% growth the World Bank estimated in January. Though India is much better placed than other countries and will remain the fastest growing large economy, the slower growth is on account of weaker activity among key trading partners and rising trade barriers for Indian exports.
How to accelerate global growth?
The Bank warned that the forces that once drove economic convergence and lifted billions out of poverty are in retreat. Globally, it wants a predictable, transparent and rules-based approach to resolving trade tensions. Even a 50% cut from May '25 tariffs will add 0.2 percentage points to global growth, the report said. At the national level, it wants countries, especially developing ones, to rebuild trade relations by lowering tariffs and striking trade deals; restoring fiscal order and accelerating job creation.
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Are trade deals still being signed?
After Trump put the reciprocal tariffs in abeyance for 90 days, he claimed that countries were lining up to strike trade deals. But the US has been able to finalize a deal only with the UK. Talks with India and other nations are still on. The US and China, the two largest economies, have had two rounds of discussions. Some progress has been made regarding critical minerals but distrust remains. It is not clear what Trump would do when the tariff pause ends next month—will he extend it or re-impose tariffs?
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