Trade tensions cloud global growth, India FY26 outlook unchanged from April: World Bank

Mint

a day ago

New Delhi: The global economy faces significant headwinds from escalating trade tensions and policy uncertainty, leading to a downgrade in prospects across most nations, the World Bank said on Tuesday. as it cut its global growth projection to 2.3% for the year.
In its "Global Economic Prospects-June 2025" report, the bank kept India's growth forecast unchanged at 6.3% for FY26, consistent with its April prediction in the South Asia update.
This is 0.4 percentage points below January's projections, as the Bank anticipates weaker activity among key trading partners and rising global trade barriers to curb Indian exports.
It expects the Indian economy to grow slightly faster at 6.5% in FY27 and 6.7% in FY28.
Globally, the World Bank has revised its economic growth projections, now expecting a slowdown to 2.3% in 2025 (0.4 percentage points below the January forecast), 2.4% in 2026 (0.3 percentage points lower) and 2.6% in 2027.
It presents India's economic data on a fiscal year basis, in contrast with its calendar year reporting for other economies.
"Only six months ago, a soft landing appeared to be in sight: the global economy was stabilizing after an extraordinary string of calamities both natural and man-made over the past few years," said Indermit Gill, Senior Vice President and Chief Economist at The World Bank Group.
"That moment has passed. The world economy today is once more running into turbulence. Without a swift course correction, the harm to living standards could be deep," he added.
In April, its sister institution the International Monetary Fund cut India's FY26 growth forecast to 6.2% from an earlier estimate of 6.5% citing trade risks from the US global tariff war.
On 2 April, US President Donald Trump announced a 27% reciprocal tariff on Indian goods, citing India's average 52% duty on US imports, as part of a broader strategy to address trade imbalances and protect domestic industries.
However, the US has temporarily reduced the tariff to 10%, providing relief to India and other trading partners.
The global economy faces severe headwinds from a complex interplay of geopolitical conflicts and escalating trade barriers.
The ongoing war in Ukraine, alongside numerous other regional skirmishes, continues to disrupt critical supply chains, fuel inflationary pressures, and erode business confidence worldwide.
This widespread instability, exacerbated by a proliferation of protectionist trade measures, is contributing to a significant deterioration in global economic prospects and poses a growing threat to living standards across the globe.
India's 6.3% projection for FY26 is primarily due to anticipated dampening effects on exports from weaker activity in key trading partners and rising global trade barriers.
"In the next two fiscal years, starting in FY2026/27 (FY27), growth is expected to recover to 6.6% a year, on average, partly supported by robust services activity contributing to a pickup in exports," it added.
The World Bank report emphasized that global risks are intensifying, with the spectre of further trade barriers and heightened policy uncertainty looming large.
It also highlighted concerns about higher-than-expected global inflation, which could lead to tighter financial conditions, potentially weakening regional currencies and spurring capital outflows.
Further downside risks to South Asia, according to the report, include the possibility of surging violence and social unrest, alongside more frequent and severe natural disasters across the globe.
"Downside risks to the outlook predominate, including an escalation of trade barriers, persistent policy uncertainty, rising geopolitical tensions, and an increased incidence of extreme climate events," Gill said.
"Conversely, policy uncertainty and trade tensions may ease if major economies succeed in reaching lasting agreements that address ongoing trade disputes," he said adding that for emerging market and developing economies (EMDEs), there has been a decline in their ability to narrow per capita income gaps with richer countries, boost job creation, and reduce extreme poverty.
In its latest report, the World Bank projects a notable slowdown for advanced economies, with growth expected to decelerate to 1.2% in 2025, 1.4% in 2026, and 1.5% in 2027.
The US is now projected to see its economic growth slow to 1.4% in 2025, before modestly picking up to 1.6% in 2026 and 1.9% in 2027, according to the report.
These revised figures represent a notable 0.9 percentage point decline for 2025 and a 0.4 percentage point reduction for 2026 compared with the Bank's January estimates, reflecting broader global economic challenges.
Europe's economic growth is now projected to slow, with the World Bank forecasting expansions of 0.7% in 2025, 0.8% in 2026, and 1% in 2027.
These figures represent a significant downward revision from January estimates, with the 2025 forecast cut by 0.3 percentage points and the 2026 outlook reduced by 0.4 percentage points.
Even as advanced economies face headwinds, emerging markets and developing economies are collectively projected to show more robust, albeit slightly tempered, growth.
The World Bank forecasts these nations will expand by 3.8% in both 2025 and 2026, inching up to 3.9% in 2027.
Within this group, China's growth is expected to moderate, with projections of 4.5% in 2025, 4% in 2026, and 3.9% in 2027, reflecting a broader trend of maturing economies.
"The outlook 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," the report said.
"On the upside, uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions," it added.