The World Bank decreased on Tuesday its global growth forecast for 2025 by 0.4 percentage points to 2.3 percent, noting that the global economy is facing a “substantial headwind”, with increased trade tension and heightened policy uncertainty.
“This is contributing to a deterioration in prospects across most of the world’s economies,” said the World Bank in its bi-annual Global Economic Prospects report.
Global growth is slowing due to a substantial rise in trade barriers and the pervasive effects of an uncertain global policy environment. This forecast marks the slowest rate of global growth since 2008, aside from outright global recessions. By 2027, global gross domestic product growth was expected to average just 2.5 percent, the slowest pace of any decade since the 1960s.
Global growth outlook largely dependent on trade policy
Progress by emerging markets and developing economies in closing per capita income gaps with advanced economies and reducing extreme poverty is anticipated to remain insufficient. The global growth 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 added.
On the upside, uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions. The bank added that ongoing global headwinds underscore the need for determined multilateral policy efforts to foster a more predictable and transparent environment for resolving trade tensions, some of which stem from macroeconomic imbalances.
Global recession risk remains below 10 percent
The report expected global trade to grow by 1.8 percent in 2025, down from 3.4 percent in 2024 and around a third of its 5.9 percent level in the 2000s. The forecast is based on tariffs in effect as of late May, including a 10 percent U.S. tariff on imports from most countries. However, it excludes increases announced by the U.S. in April and then postponed until July 9 to allow for negotiations.
The bank also noted that global inflation is expected to reach 2.9 percent in 2025, remaining above pre-COVID levels, given tariff increases and tight labor markets.
Despite lowering its global growth forecast, the World Bank said the risk of a global recession was less than 10 percent.
The report added that all emerging markets and developing economies face a challenging growth outlook amid the rise in trade tensions and heightened global uncertainty. It lowered its forecasts for nearly 70 percent of all economies, including the United States, China and Europe, as well as six emerging market regions, from the levels it projected just six months ago before U.S. President Donald Trump took office.
Growth is projected to slow in 2025 in East Asia and the Pacific as well as in Europe and Central Asia—both regions that are highly reliant on global trade—and, to a lesser extent, in South Asia. In Latin America and the Caribbean, the World Bank expects growth to be the lowest among emerging markets and developing economies over the forecast horizon, as activity is held back by high trade barriers and long-standing structural weaknesses.
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MENA to grow 2.7 percent in 2025
Growth in the Middle East and North Africa (MNA) region is projected to strengthen to 2.7 percent in 2025 and average 3.9 percent in 2026-27, mainly due to an expansion of oil activity in oil exporters, which more than offsets the adverse effects of weakening external demand and lower oil prices.
Growth in oil importers is also expected to rise, reflecting an assumed stabilization of armed conflicts in the region and waning inflationary pressures. Despite firming activity, growth forecasts for MNA this year and next have been downgraded from January projections amid a rise in trade barriers. Moreover, weaker growth prospects will exacerbate the region’s looming jobs challenge, hindering the job creation needed to keep pace with rapidly expanding working-age populations.
Growth in GCC countries is forecast to increase to 3.2 percent in 2025, 4.5 percent in 2026, and 4.8 percent in 2027. The phase-out of OPEC+ oil production cuts starting in April 2025 is expected to lead to rising oil production, despite projected lower oil prices amid weakening global demand.
