The World Bank has recently revised its global growth forecasts for 2025, lowering its projections significantly due to ongoing trade tariffs and heightened economic uncertainty. This latest assessment highlights some of the weakest economic conditions seen globally since the 2008 financial crisis.
In its biennial Global Economic Prospects report, the World Bank downgraded growth forecasts for nearly 70 percent of all global economies, including major players like the United States and several European nations. Among the emerging market regions, the economic outlook has also dimmed from previous expectations, particularly influenced by the trade policies introduced by the Trump administration.
Tariffs, along with the various geopolitical tensions, have disrupted global trade dynamics, leading to substantial business uncertainties. The Trump administration’s approach has raised the effective U.S. tariff rate from below 3 percent to the mid-teens, marking the highest level we’ve seen in nearly a century. This has incited retaliatory measures from China and other countries, adding to the atmosphere of uncertainty.
Despite these challenges, the World Bank stopped short of forecasting a full-blown recession. However, it did indicate that global economic growth in the coming year is predicted to be the weakest since the last major downturn. By 2027, the World Bank anticipates that global GDP growth will stabilize at an average of just 2.5 percent—an alarming forecast that reflects the slowest average growth in any decade since the 1960s.
The revised forecast aligns with previous concerns raised by the International Monetary Fund (IMF), which downgraded growth predictions earlier in April, highlighting that Australia’s economic situation would face particular pressures. The IMF pointed towards potential inflation upticks in the U.S. and other major western economies, further complicating the global economic landscape.
Emerging markets are likely to feel the pinch as well. China’s economy, Australia’s largest trading partner, is now expected to slow to 4.5 percent in 2025, with predictions dropping even further to 4 percent in 2026. This decline reflects the continued impacts of U.S. tariffs and slower growth in major advanced economies. The report emphasizes that regions tied closely with commodity exports will struggle due to a weakened external demand for commodities.
In addition to these insights, the World Bank reports that global trade is projected to grow by just 1.8 percent in 2025—a sharp decline from 3.4 percent in 2024. This significant reduction is roughly a third of the growth rates observed in the 2000s, painting a stark picture of diminishing trade vitality in an interconnected global economy.
Inflation remains a persistent concern as well, with expectations of reaching 2.9 percent globally in 2025, which stays above pre-COVID levels due to rising tariffs and tight labor markets. While the report did not provide specific projections for Australia, recent data has shown that domestic economic growth there slowed to a mere 0.2 percent in the first quarter of the year.
The report highlights the disparities in impacts across different economic strata. The United States now faces a downgraded GDP forecast of 1.4 percent, a reduction of 0.9 percentage points from earlier estimates, with a similarly lowered outlook for 2026. Europe’s economy is facing hard times, projected to expand a meager 0.7 percent in 2025, underscoring a widespread economic malaise.
Ayhan Kose, the World Bank’s Deputy Chief Economist, succinctly describes the atmosphere of risk and uncertainty: "Like fog on a runway, it slows investment and clouds the outlook." The report emphasizes that poorer nations will likely experience the most significant setbacks, with developing economies expected to be about 6 percent smaller in 2027 than before the onset of the COVID-19 pandemic. The ramifications of the current decade may linger long into the future for these countries—excluding China—potentially taking them two decades to regain their economic footing.
This sobering economic outlook reminds us of the complexities of global economies, where local policies resonate far beyond borders. Economic growth is inextricably linked to a multitude of factors, including trade relations, political stability, and consumer confidence, making it increasingly vital for nations to work collaboratively in mitigating these challenges.
The World Bank’s assessment serves as a call to action for governments, businesses, and international organizations to rethink and recalibrate their strategies in navigating the future landscape of global trade and economic development. The interconnectedness we have built over decades now requires renewed focus and collaboration to ensure a stable and prosperous economic environment for all.
The dual challenges of tariffs and uncertainty command immediate attention, and navigating these waters will demand resilience and innovation. While the figures may paint a dire portrait, they also highlight the potential for change—an opportunity for nations to reassess trade policies, foster partnerships, and bolster economic stability in an increasingly unpredictable world.
For everyone from policymakers to everyday citizens, understanding these dynamics is crucial. In an era marked by change and unpredictability, adapting to the evolving economic landscape will be paramount for ensuring not only survival but growth and progress in the years to come.
