Global growth likely to slow to 2.3% in 2025: World Bank

The economic outlook has worsened across the board, with growth forecasts cut in nearly 70 per cent of economies, spanning all regions and income levels. While a global recession isn’t expected, if current forecasts hold, average global growth in the 2020s’ first seven years will be the slowest since the 1960s.

“Outside of Asia, the developing world is becoming a development-free zone," said Indermit Gill, the World Bank Group’s chief economist and senior vice president for development economics. “It has been advertising itself for more than a decade. 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, which has fallen from an average of 5 per cent in the 2000s to about 4.5 per cent in the 2010s—to less than 3 per cent in the 2020s. Investment growth has also slowed, but debt has climbed to record levels.”

Growth is expected to slow in nearly 60 per cent of all developing economies this year, averaging 3.8 per cent in 2025 before edging up to an average of 3.9 per cent over 2026 and 2027. That is more than a percentage point lower than the average of the 2010s. Low-income countries are expected to grow 5.3 per cent this year—a downgrade of 0.4 percentage point 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 per cent 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 per cent in 2025—1.1 percentage points below the average between 2000 and 2019. Assuming developing economies other than China are able to sustain an overall GDP growth of 4 per cent—the rate forecast for 2027—it would take them about two decades to return to their pre-pandemic trajectory with respect to economic output, as per the report.

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 percentage point stronger on average over the course of 2025 and 2026.

“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, World Bank’s 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. 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.

ALCHEMPro News Desk (RR)