Global economic growth slows down drastically – What is going on?

According to a report released by the World Bank on Thursday, global economic growth is expected to flatline at 2.7% in 2025 and 2026, the same lackluster pace as last year.

That’s not even close to the pre-COVID-19 boom years, and it’s the weakest long-term projection in decades. Ayhan Kose, the World Bank’s deputy chief economist, said:

“This stable growth is not sufficient. We should not accept this new, mediocre normal when it comes to global growth.”

Trump’s tariffs and shrinking trade

The World Bank estimates that a 10% hike in U.S. tariffs would drag global economy’s growth down to 2.5%. If other countries retaliate with their own trade barriers, it could plunge to 2.4%. After the 2008 financial crisis, global trade volumes shrank, and recent years haven’t been kinder.

President Donald Trump’s tariff threats are another blow to an already fragile system. Kose pointed out that the effects will be felt hardest by developing nations. “We are very worried that emerging and developing economies are facing a difficult external environment,” she said.

But she added that these countries can still take action. Lowering trade barriers between each other is one solution. Agreements like the African Continental Free Trade Area and Asia’s Regional Comprehensive Economic Partnership show that regional cooperation is possible.

Infrastructure gaps and dependency on big economies

Poor infrastructure is holding developing countries back. The World Bank has emphasized the need for better domestic transport systems.

Without them, factories, farms, and mines struggle to get their products to global markets. Building better roads and cutting logistics costs could provide some relief, per the report.

Trade among developing nations has grown a lot over the years. Back in 2000, only 20% of their exports went to other developing countries. Now, that figure stands at 40%. Meanwhile, these economies have grown from generating 25% of global GDP in 2000 to 45% today.

Indermit Gill, the World Bank’s chief economist, pointed out the tough reality: “The welfare of developing economies is still strongly tied to growth in the big three advanced economies.” If the U.S. sneezes, developing nations catch a cold.

China and the U.S.: Wild cards in a struggling global economy

But the World Bank believes that China and America, our two largest economies, could still outperform expectations. In China, more stimulus measures is expected to boost its domestic demand.

As for America, the World Bank raised its growth forecast for 2025 from 1.8% to 2.3%, while China’s projection climbed from 4.1% to 4.5%.

But the World Bank also pointed out that inflation remains a persistent threat, delaying the expected cuts in interest rates. High borrowing costs are squeezing both businesses and consumers, particularly in poorer countries.

“In a world shaped by policy uncertainty and trade tensions, developing economies will need bold and far-reaching policies,” Kose said. “A good start would be to pursue strategic trade and investment partnerships with the rapidly expanding markets of other developing nations.”

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