World Bank Downgrades 2025 Growth Outlook as Trade Tensions Weigh
The global economy is facing unprecedented challenges, with the World Bank slashing its 2025 growth forecast to 2.3%—a 0.4 percentage point reduction from its previous estimate—citing escalating trade tensions and rising tariff barriers. The bleak outlook, detailed in the Global Economic Prospects report released Tuesday (June 10), highlights the economic fallout from aggressive trade policies, particularly those of the new U.S. administration.
The 2.3% growth projection is significantly below pre-pandemic averages and marks the weakest non-recessionary expansion since the 2008 financial crisis. Worse, the World Bank expects global GDP growth to slow further to 2.5% by 2027—the slowest pace since the 1960s. Nearly 70% of economies, including the U.S., Europe, and emerging markets, have seen their growth forecasts downgraded.
“Uncertainty is like fog on a runway—it slows investment and darkens economic prospects,” said Ayhan Kose, the World Bank’s Deputy Chief Economist. The report warns that trade barriers and policy unpredictability are stifling global trade, consumption, and investment, while financial markets face growing instability.
U.S. Tariff Hikes Trigger Global Trade Turmoil
The World Bank singles out the U.S. administration’s aggressive trade policies as a key driver of economic uncertainty. Since taking office, President Trump has raised tariffs from below 3% to nearly 15%—the highest level in nearly a century. This has disrupted global supply chains and prompted retaliatory measures from China and other trading partners.
The bank predicts global trade growth will slow to just 1.8% in 2025—half the 3.4% growth seen in 2024 and far below the 5.9% average of the 2000s. If the U.S. imposes an additional 10% tariff hike and triggers further retaliation, 2025 global growth could fall by another 0.5 percentage points, potentially freezing trade activity in the second half of the year amid collapsing market confidence and financial volatility.
Although the Trump administration has delayed tariff increases until July 9 for negotiations, the World Bank’s forecast does not account for this potential reversal, underscoring deep concerns about trade war escalation.
U.S. Growth Forecast Cut, White House Pushes Back
The World Bank slashed its 2025 U.S. growth forecast to 1.4% (from 2.3% in January) and 2026’s projection to 1.6% (from 2.0%). The report blames rising trade barriers, policy uncertainty, and financial market volatility for weighing on consumer spending, trade, and investment.
However, White House spokesperson Kush Desai dismissed the findings, arguing they conflict with recent economic data. He pointed to near-25% growth in business equipment investment in Q1 2025, a 0.7% rise in real disposable income in April, and stronger-than-expected jobs and inflation reports. The White House also emphasized that its proposed budget, including tax cuts, would further stimulate growth.
Despite the optimistic rhetoric, the World Bank’s projections reflect broad economist concerns that trade wars and uncertainty are eroding business confidence, potentially undermining U.S. growth over the medium term.
China Shows Resilience, Emerging Markets Struggle
In contrast to the U.S. downgrade, the World Bank maintained its 4.5% growth forecast for China in 2025, citing ample monetary and fiscal policy tools to support the economy. However, emerging markets and developing economies face a bleaker outlook, with growth projections falling from 4.1% to 3.8%.
Poorer nations are particularly vulnerable, with per capita GDP in developing economies (excluding China) expected to remain 6% below pre-pandemic levels by 2027. Recovery from the 2020s’ economic losses could take up to two decades.
Inflation Pressures Persist, Recession Risks Linger
Beyond slowing growth, global inflation is set to rise, with the World Bank forecasting a 2.9% inflation rate in 2025—higher than pre-pandemic levels. Tariff hikes and tight labor markets are key drivers, though the risk of outright recession remains below 10%.
The report warns that continued trade escalation could freeze global commerce, triggering a confidence crisis and financial market turmoil.
Glimmers of Hope: Trade Talks and AI Growth
Despite the grim outlook, the World Bank highlights potential bright spots. Increased global trade dialogue may help ease uncertainty, while supply chains are adapting to new trade realities. Additionally, rapid AI advancements could provide a fresh growth impetus.
The bank expects global trade growth to rebound slightly to 2.4% in 2026, with Kose optimistic that “once uncertainty lifts, the trade engine may reignite—albeit at a slower pace.”
Gold Prices: Safe Haven Demand vs. Dollar Strength
The World Bank’s downbeat forecast has complex implications for gold prices, a traditional safe-haven asset:
Growth slowdowns and rising uncertainty typically boost gold demand as investors seek shelter.
Higher global inflation (2.9%) enhances gold’s appeal as an inflation hedge.
However, U.S. tariff policies may strengthen the dollar, potentially capping short-term gold gains.
If trade talks progress or AI-driven growth materializes, risk appetite could return, reducing gold’s safe-haven appeal.
Conclusion
The World Bank’s latest report paints a cautious picture of the global economy, with trade wars, inflation, and policy uncertainty posing significant risks. While gold remains a key hedge, its trajectory will depend on whether geopolitical tensions ease or economic headwinds intensify. Investors should stay attuned to trade developments and central bank responses as the outlook evolves.
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