The World Bank announced on Tuesday that it has adjusted its growth projections for both the global and US economies this year, attributing the shift to disruptions in global trade exacerbated by the trade war initiated by President Trump.
The forecast for global growth in 2025 has dropped to 2.3%, down from last year’s estimate of 2.7%. Similarly, the outlook for the US economy has been revised from 1.8% to 1.4%.
According to international financial institutions, this revised outlook does not factor in potential recessions and highlights the slowest rate of growth worldwide since 2008, largely driven by new trade barriers and policy shifts.
“The swift increase in tariffs and the resulting uncertainty are factors contributing to a slowing and potentially declining growth trend in much of the global economy,” noted an economist from the World Bank.
These policy alterations have created a climate of uncertainty for both businesses and consumers, a trend reflected in numerous studies released in recent months.
Concerns among small and medium enterprises (SMEs) were evident, scoring 94 on an index in May, a stark contrast to a peak of 110 in October of the previous year as reported by the National Federation of Independent Businesses.
Despite a sharp downturn in April following the imposition of “mutual” tariffs from various countries, small business confidence in May surpassed the 51-year average. While these bilateral tariffs have been paused due to ongoing trade talks, a blanket 10% tariff remains in place.
Current estimates indicate that US tariff levels range from 10% to 15%, the highest they’ve been in a century. This includes recent highs nearing 25% as the tariffs between the US and China continued to escalate as of May 12.
The 10-15% tariff rate, which came into effect at the end of May, could influence the World Bank’s predictions, although economists warned of “notable uncertainty regarding this.”
Generally, ongoing US tariffs are set at 10% for most imports, 30% on imports from China, and 25% on certain products from Canada and Mexico, alongside other goods.
The US Congressional Budget Office (CBO) has adjusted its inflation projections upwards by 0.4% due to these tariffs.
In 2024, the economic landscape outperformed the World Bank’s expectations, with global growth recorded at 2.8%, exceeding the previous estimate of 2.6%.
The US economy also surpassed forecasts in 2024, achieving 2.8% growth compared to a previously projected 2.5%.
The current forecast for US growth in 2025 is considerably lower than the Federal Reserve’s most recent rate of 1.8%, released in March.
The narrative surrounding the economy has shifted from post-pandemic recovery to the implications of President Trump’s trade war.
Last year, UN economists noted that globalization seems to be reaching a pivotal turning point.
“The typical trade liberalization measures observed since 1990 have transitioned toward more protectionist and interventionist tactics,” they commented.
Although US inflation is approaching a target annual rate of 2% without a recession, economic activities are once again facing turbulence, raising worries about the sustainability of a “soft landing” following the pandemic.
“That moment has passed. Today’s global economy is encountering difficulties once again,” concluded the World Bank economist.
