Global economic growth outlook plunges to 2.3%, says World Bank

The World Bank lowered its 2025 global growth forecast to 2.3 per cent, down from 2.7 per cent previously expected.

In its latest economic prospects report, the 189-country organisation attributed the downgrade to escalating trade tensions and policy uncertainty, noting that the US President Donald Trump’s extensive tariffs have strained international ties and dampened economic outlooks worldwide.

This revision marks the latest in a series of downgrades by international organisations.

Meanwhile the International Monetary Fund said that its next global growth forecast in July will take into account both positive and negative trade developments but declined to predict a tariff-driven GDP downgrade similar to that released by the World Bank this week.

IMF spokesperson Julie Kozack said that since the last release of the Fund’s World Economic Outlook in April, there have been some positive developments that could support improved economic activity, including a major tariff reduction between the US and China and an initial trade deal between the US and Britain.

“So taken together such announcements combined with the April 9 pause on the high level of tariffs, these could support activity relative to the forecast that we had in April,” Kozack told a regular IMF news briefing. “But nonetheless, we do have an outlook for the global economy that remains subject to heightened uncertainty, especially as trade negotiations continue.”

The IMF also will take into account US President Donald Trump’s added steel and aluminium tariffs, she said. These have now reached 50 per cent for all exporters.

The World Bank slashed its 2025 global growth forecast by four-tenths of a percentage point from its January forecast to 2.3 per cent, saying that higher tariffs and heightened uncertainty posed a “significant headwind” for nearly all economies.

The development lender cut forecasts for nearly 70 per cent of all economies - including the US, China and Europe, but the prior forecast came before Trump took office and imposed tariffs on nearly all trading partners.

The IMF’s steep April forecast cut did take into account Trump’s initial tariff assault, reducing the 2025 global growth outlook by half a percentage point from its January forecast to 2.8 per cent, with a slower decline in inflation.

Kozack said the next IMF World Economic Outlook update will be issued toward the end of July, but did not provide a specific date.

Trump’s “reciprocal” tariff pause is currently scheduled to expire on July 8, with many countries seeking to negotiate tariff-reducing deals before then. And Trump has said there could be extensions of that deadline for countries engaged in good faith negotiations with the US Kozack said that more recent activity indicators reflect “a complex economic landscape” with first quarter front-loading activity to beat tariffs, while there has been some diversion of trade and an unwinding of import activity in the second quarter. There also could be more trade deals or other developments to take into account.

“So all of this creates kind of a complicated picture for us, with some upside risk, some other developments, and we’ll take all of these developments together into account as we update our forecast,” Kozack said.

The International Monetary Fund said that its next global growth forecast in July will take into account both positive and negative trade developments but declined to predict a tariff-driven GDP downgrade similar to that released by the World Bank this week.

IMF spokesperson Julie Kozack said that since the last release of the Fund’s World Economic Outlook in April, there have been some positive developments that could support improved economic activity, including a major tariff reduction between the US and China and an initial trade deal between the US and Britain.

“So taken together such announcements combined with the April 9 pause on the high level of tariffs, these could support activity relative to the forecast that we had in April,” Kozack told a regular IMF news briefing. “But nonetheless, we do have an outlook for the global economy that remains subject to heightened uncertainty, especially as trade negotiations continue.”

Meanwhile world stock markets fell on Friday, and oil prices surged, as Israel launched military strikes on Iran, sparking inflows into safe havens such as gold and the dollar. An escalation adds uncertainty to financial markets at a time of heightened pressure on the global economy from US President Donald Trump’s unpredictable trade policies.

Brent crude oil prices were last up 7.25 per cent at $74.39 per barrel, having jumped as much as 14 per cent during Asian trading hours. They were set for their biggest one-day jump since 2022, when energy costs spiked after Russia’s invasion of Ukraine.

Gold, a safe haven in times of global uncertainty, rose 1.4 per cent to $3,432 per ounce, bringing it close to the record high of $3,500.05 from April.

The rush to safety was matched by a dash out of risk assets. The Dow Jones Industrial Average fell 1.65 per cent, the S&P 500 dropped 0.86 per cent, and the Nasdaq Composite lost 0.9 per cent.

Reuters