The global economy is anticipated to experience its lowest growth rate since the Global Financial Crisis, with projections of only 2.3% growth in 2025, as outlined in a recent World Bank report. This figure represents a notable decrease from 2.8% in the previous year and marks the lowest growth outside of the recessions in 2009 and 2020.
This revised estimate comes in stark contrast to earlier projections made by the World Bank earlier this year, which had anticipated a more optimistic growth rate of 2.7%. The analysis highlights the persistent challenges impacting global markets, primarily stemming from trade tensions instigated by Donald Trump’s trade war, which has adversely affected multiple economies, including Australia and the UK, by imposing tariffs on major trading partners like China.
While the World Bank refrains from directly mentioning Trump in their report, it attributes significant weight to how these escalating trade tensions are contributing to dwindling economic growth prospects. The report states, “After a succession of adverse shocks in recent years, the global economy is facing another substantial headwind, with increased trade tension and heightened policy uncertainty,” leading to a broad decline in economic outlook worldwide.
Moreover, the report suggests that if tariffs were reduced by half, there could be a modest improvement of 0.2 percentage points in growth. Though the trade tensions may show signs of easing with recent agreements between the US and China, the threat of worsening conditions remains prevalent, compounded by factors such as geopolitical tensions and climate-related challenges.
Most concerning perhaps is the projection that growth is unlikely to rebound to the levels seen last year or even the 3.3% forecast for 2023 in the near future. If the World Bank’s predictions hold true, the 2020s are set to become the weakest decade for economic growth since the 1960s, a period marked by Cold War instability.
Reflecting on the recent past, the report notes, “Only six months ago, a ‘soft landing’ appeared to be in sight… That moment has passed. The world economy today is once more running into turbulence.” Without prompt intervention, the consequences for living standards could be severe, indicating the need for significant policy changes to avoid deeper economic harm.