World Bank cuts 2025 growth forecasts for 70% of economies

• Warns global economy set for weakest run since 2008 outside of recessions

 Heightened trade tensions and policy uncertainty are expected to drive global growth down this year to its slowest pace since 2008 outside of outright global recessions, according to the World Bank’s latest Global Economic Prospects report. The turmoil has resulted in growth forecasts being cut in nearly 70% of all economies—across all regions and income groups.

Global growth is projected to slow to 2.3% in 2025, nearly 0.5% lower than the rate that had been expected at the start of the year. A global recession is not expected. Nevertheless, if forecasts for the next two years materialise, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.

World Bank Group Chief Economist and Senior Vice President – Development Economics Indermit Gill said: “Outside of Asia, the developing world is becoming a development-free zone. 

It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6% annually in the 2000s to 5% in the 2010s—to less than 4% in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5% in the 2000s to about 4.5% in the 2010s—to less than 3% in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”

Growth is expected to slow in nearly 60% of all developing economies this year, averaging 3.8% in 2025 before edging up to an average of 3.9% over 2026 and 2027. That is more than 1% lower than the average of the 2010s. Low-income countries are expected to grow 5.3% this year—a downgrade of 0.4% from the forecast at the start of 2025. Tariff increases and tight labour markets are also exerting upward pressure on global inflation, which, at a projected average of 2.9% in 2025, remains above pre-pandemic levels.

Slowing growth will impede developing economies in their efforts to spur job creation, reduce extreme poverty, and close per capita income gaps with advanced economies. Per capita income growth in developing economies is projected to be 2.9% in 2025—1.1% below the average between 2000 and 2019. Assuming developing economies other than China are able to sustain an overall GDP growth of 4%—the rate forecast for 2027—it would take them about two decades to return to their pre-pandemic trajectory with respect to economic output.

Global growth could rebound faster than expected if major economies are able to mitigate trade tensions—which would reduce overall policy uncertainty and financial volatility. The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2% stronger on average over the course of 2025 and 2026.

World Bank Deputy Chief Economist and Prospects Group Director M. Ayhan Kose said: “Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict. 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. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.”

The report argues that in the face of rising trade barriers, developing economies should seek to liberalise more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade—including through regional agreements. Given limited government resources and rising development needs, policymakers should focus on mobilising domestic revenues, prioritising fiscal spending for the most vulnerable households, and strengthening fiscal frameworks.

Finally, to accelerate economic growth, countries will need to improve business climates and promote productive employment by equipping workers with the necessary skills and creating the conditions for labour markets to efficiently match workers and firms. Global collaboration will be crucial in supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing, and, for countries embroiled in active conflicts, emergency relief and support.