Trade Wars and Inflation Force World Bank to Lower Global Growth Forecast

The World Bank has significantly revised its global growth forecast for 2025, projecting a mere 2.3% expansion in global GDP—the slowest pace in over a decade outside of recession periods. In its June 2025 economic outlook report, the international financial institution attributed the downgrade to escalating trade tensions, persistent monetary policy tightening, and mounting geopolitical uncertainty.

Why the World Bank Cut the Global Growth Forecast

The World Bank’s lowered growth projection stems primarily from disrupted global trade flows, rising interest rates, and reduced consumer spending in both developed and emerging markets. The slowdown follows a turbulent year marked by geopolitical unrest, a fragile post-pandemic recovery, and increasing barriers to trade.

“Global economic momentum is weakening faster than anticipated, particularly in vulnerable regions,” said Anna Bjerde, Managing Director of Operations at the World Bank.

Global GDP Projections for 2025: A Closer Look

Here’s how the new projections break down:

• Global GDP: Now forecasted at 2.3%, down from a previous estimate of 2.8%

• Advanced Economies: Expected to grow just 1.1%, as central banks maintain restrictive policies

• Developing Countries: Projected to see 3.9% growth, with risks from high debt and climate volatility

• China’s Economy: Slated to slow to 4.6%, impacted by domestic consumption lags and external pressures

• U.S. Economy: Forecasted at 1.3%, weighed down by interest rate hikes and cooling labor demand

Economic Risks: Trade Wars, Inflation, and Recession Fears

The report highlights intensifying trade tensions—especially between the U.S. and China—as a critical factor suppressing investment and manufacturing. Coupled with persistent inflation in energy and food sectors, these frictions amplify fears of a potential global recession.

Additionally, financial tightening by major central banks, including the U.S. Federal Reserve and the European Central Bank, has significantly curbed liquidity. “The risk of stagflation—low growth and high inflation—has returned to the spotlight,” the report warns.

Regional Analysis: Emerging Markets and the Asia-Pacific Outlook

Emerging Markets

Although developing countries still offer growth potential, the report warns of widening fiscal deficits and an uneven recovery. Countries in Sub-Saharan Africa and Latin America face currency depreciation and limited fiscal space to respond to shocks.

Asia-Pacific

The Asia-Pacific region, traditionally the engine of global expansion, is projected to grow at a slower rate of 4.2%. This is mainly due to China’s economic slowdown, weakening export demand, and regional supply chain disruptions.

What Does This Mean for Investors and Policymakers?

With the World Bank's downgraded global economic outlook, both investors and governments are urged to prepare for prolonged turbulence. Key takeaways include:

• Focus on resilient sectors like digital services and green energy

• Strengthen social safety nets in vulnerable economies

• Expand infrastructure investment to boost domestic demand

• Reconsider monetary policy frameworks to maintain financial stability

Final Thoughts: Time for Strategic Response

The World Bank’s June 2025 forecast acts as a sobering reminder that the global economy remains vulnerable to shocks. As recession risks loom, particularly for emerging markets, collaboration across nations will be key to navigating an increasingly fragmented economic landscape.