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The World Bank has stated in its recent report on Global Economic Prospects that escalating trade disputes and ongoing policy instability are likely to pull global growth down to its most sluggish level since 2008, excluding full-blown global recessions, by 2025.
Growth estimates have been reduced in almost 70% of countries across various regions and income brackets, with new projections indicating a global expansion of merely 2.3% in 2025, which is almost half a percentage point lower than earlier forecasts made at the start of the year.
Although the report does not predict a worldwide recession, it warns that if the forecasts for 2025 and 2026 hold true, the average global growth during the first seven years of this decade could represent the slowest beginning for any decade since the 1960s.
Indermit Gill, chief economist and Senior Vice President for Development Economics at the World Bank, remarked, “Outside of Asia, the developing world is experiencing a stagnation in development. Growth in developing nations has been declining steadily for three decades—from 6% per year in the 2000s to 5% in the 2010s, and now below 4% in the 2020s. This trend mirrors the pattern of global trade growth, as investment rates have also decreased while debt has surged to unprecedented levels.”
Growth Expected to Decline in 60% of Emerging Economies
The World Bank anticipates that growth will diminish in nearly 60% of developing countries this year, projecting an average growth rate of 3.8% in 2025, slight improvement to 3.9% in 2026 and 2027. This figure is more than a full percentage point lower than the average growth experienced in the 2010s.
For low-income nations, growth is now predicted at 5.3% in 2025, a reduction of 0.4 percentage points from earlier predictions. Global inflation rates remain high, primarily driven by tariffs and tight labor conditions; the World Bank estimates inflation will average 2.9% in 2025, above levels seen before the pandemic.
The report cautions that slow growth will impede the abilities of developing economies to generate jobs, alleviate extreme poverty, and narrow the income disparities compared to advanced economies. Per capita income growth is expected to reach 2.9% in 2025, a decrease of 1.1 percentage points from the average during 2000-2019.
If developing countries, excluding China, manage to sustain a growth rate of 4% as forecasted for 2027, it could take about two decades to return to the output levels seen before the pandemic.
However, the World Bank acknowledged that if major economies take steps to reduce trade tensions, growth could bounce back more quickly. Settling ongoing disputes and cutting tariffs in half could enhance global growth by an average of 0.2 percentage points over the next two years, in 2025 and 2026.
M Ayhan Kose, deputy chief economist and director of the Prospects Group, stated, “Emerging markets and developing nations have benefited from trade integration, yet they now find themselves at the forefront of a global trade struggle. The best response is to intensify efforts to integrate with new trading partners, push for growth-friendly reforms, and solidify fiscal resilience to withstand economic challenges.”
The report encourages developing countries to pursue regional trade agreements, diversify their export markets, and relax investment regulations to counteract the surge in protectionism. It also emphasizes the necessity for mobilizing domestic revenue, targeting fiscal spending towards vulnerable populations, and establishing stronger fiscal frameworks.
To boost growth, countries need to enhance their business environments, create productive job opportunities, and reinforce labor market connections. Multilateral support, concessional funding, and emergency relief will be crucial for the most vulnerable nations, particularly those affected by conflicts.
World Bank’s Regional Growth Outlooks for 2025
- East Asia and Pacific: 4.5%
- Europe and Central Asia: 2.4%
- Latin America and Caribbean: 2.3%
- Middle East and North Africa: 2.7%
- South Asia: 5.8%
- Sub-Saharan Africa: 3.7%