World Bank warns global growth to slow to lowest pace since 2008 amid trade tensions

Gulf Business

19 hours ago

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Heightened trade tensions and persistent policy uncertainty are set to drag global growth down in 2025 to its weakest level since 2008, excluding outright global recessions, the World Bank said in its latest
Global Economic Prospects
Growth forecasts have been downgraded in nearly 70 per cent of economies across all regions and income groups, with global output now expected to expand by just 2.3 per cent in 2025 — nearly half a percentage point lower than projected at the start of the year.
While the report does not forecast a global recession, it cautions that if projections for 2025 and 2026 materialize, the average global growth for the first seven years of this decade will mark the slowest start to any decade since the 1960s.
'Outside of Asia, the developing world is becoming a development-free zone,' said Indermit Gill, chief economist and SVP for Development Economics at the World Bank. '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. That tracks the trajectory of growth in global trade… Investment growth has also slowed, but debt has climbed to record levels.'
Growth to weaken in 60 per cent of emerging economies
The World Bank expects growth to weaken in nearly 60 per cent of developing economies this year, reaching an average of 3.8 per cent in 2025, before slightly improving to 3.9 per cent in 2026–27. That is more than a full percentage point below the average growth recorded in the 2010s.
Among low-income countries, growth is now projected at 5.3 per cent in 2025, down 0.4 percentage points from earlier forecasts. Global inflation remains elevated, with price pressures driven by tariffs and tight labour markets; the World Bank projects inflation to average 2.9 per cent in 2025, above pre-pandemic levels.
The report warns that sluggish growth will hinder developing economies in their efforts to create jobs, reduce extreme poverty, and close per capita income gaps with advanced economies. Per capita income growth is expected to hit 2.9 per cent in 2025, down 1.1 percentage points compared to the 2000–2019 average.
Assuming developing economies excluding China maintain a growth rate of 4 per cent — as forecast for 2027 — it could take about two decades to return to their pre-pandemic output trajectory.
Still, the
'Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,' said M Ayhan Kose, deputy chief economist and director of the Prospects Group. '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.'
The report encourages developing economies to pursue regional trade agreements, diversify export markets, and liberalise investment policies to counter rising protectionism. It also stresses the importance of domestic revenue mobilisation, targeted fiscal spending for vulnerable populations, and stronger fiscal frameworks.
To accelerate growth, countries must improve business environments, boost productive employment, and strengthen labour market linkages. Multilateral support, concessional financing, and emergency relief will be essential for the most vulnerable economies, particularly those affected by conflict.
World Bank's regional outlooks (2025 projections)
East Asia and Pacific
: 4.5 per cent
Europe and Central Asia
: 2.4 per cent
Latin America and Caribbean
: 2.3 per cent
Middle East and North Africa
: 2.7 per cent
South Asia
: 5.8 per cent
Sub-Saharan Africa
: 3.7 per cent