In a foreword to the latest edition of the twice-yearly Global Economic Prospects report, World Bank chief economist Indermit Gill has warned the international community that the global economy has missed a chance for the “soft landing” – slowing enough to tame inflation without generating serious pain – it had appeared headed for just six months ago.
He was, of course, referring to the post-pandemic, pre-Trump phase when the global economy, reeling under the impact of the prolonged Covid-19 pandemic, was slowly recovering and picking up pace despite negative developments such as the war in Ukraine. It took a maverick like Trump to throw a spanner in the works and spark off a trade war that has the potential to retard economic growth not only in America or China, but all across the world.
The World Bank, which counts 189 countries as borrowers, has cited “a substantial rise in trade barriers” while making the harsh prediction that global growth this year would be 0.4 percentage points less than what it had forecast earlier. The bank now expects the world economy to expand just 2.3% in 2025, down from 2.8% in 2024. The US economy, the largest in the world, would grow half as fast (1.4%) this year than it did in 2024 (2.8%). That marks a downgrade from the 2.3% US growth it had forecast for 2025 back in January.
This is an undisguised indictment of the new occupant of the White House. The World Bank asserted that America’s economic prospects have been clouded by Trump’s erratic and aggressive trade policies, including 10% tariffs on imports from almost every country in the world, which have driven up costs in the US while inviting retaliation from affected countries.
Other major economies of the world, too, do not have much to cheer about. The second largest economy, that of China, hobbled as it had been by crippling tariffs imposed on it by the US, is forecast to see growth slow from 5% in 2024 to 4.5% this year and 4% next year.
Similarly, the World Bank expects the 20 European countries that share the euro currency to collectively grow just 0.7% this year, down from a poor 0.9% in 2024, with the unpredictable nature of Trump’s tariffs being expected to hurt European exports and discourage business investment. No doubt the Japanese economy is forecast to grow, but in a sluggish manner, to 0.7% this year, well short of the 1.2% the World Bank had forecast in January.
India, too, faces a slight slowdown, although it is once again expected to be the world’s fastest-growing major economy.
The nub of this harsh projection is that, unless there is course correction, global economies are in for a period of turbulence that might quite possibly send many of them in a lethal tailspin!