World Bank predicts worst decade for global growth since 60s

The World Bank projects the slowest decade for global growth since the 1960s, forecasting 2.3% growth in 2025 (down 0.4% from prior estimates) and 2.6% in 2027, citing the impact of trade restrictions and policy uncertainty, particularly those stemming from US tariffs. Downgrades were issued for the US, Europe and Japan, with the US specifically impacted by trade tensions affecting investor confidence and private consumption; China's growth forecast was maintained. The report warns of further growth cuts and rising inflation if tariffs increase, potentially leading to trade disruptions and financial market turmoil, although a global recession is deemed unlikely.

Analysis

The World Bank's latest projections signal a challenging period ahead, with global economic growth anticipated to experience its slowest decade since the 1960s. The bank forecasts global growth of only 2.3% in 2025, a 0.4% reduction from its January prediction, and 2.6% for 2027, largely attributing this slowdown to the impact of US tariffs, including a universal 10% import tariff and higher duties on steel and aluminium. These trade measures have led to forecast downgrades for nearly two-thirds of countries, notably the US, Japan, and Europe, with the US specifically impacted by rattled investor confidence and weakened private consumption due to escalating trade tensions. Conversely, China's growth forecast was maintained, with the World Bank indicating its financial stability could weather these "significant headwinds." The report highlights "heightened policy uncertainty" and the potential for "further rapid shifts" in trade-restrictive actions as key risks, warning that increased US tariffs could lead to further growth cuts, rising inflation, a seizure in global trade, a collapse in confidence, and financial market turmoil, though a global recession is deemed less than 10% probable. This pessimistic outlook, reflected in a "strongly negative" sentiment score and "significant" market impact score, is corroborated by the OECD's recent downgrade of its global growth forecast to 2.9% from 3.1%, as US-China trade talks continue.

Key Decisions for Investors

• Adopt a cautious and defensive portfolio stance given the downgraded global growth outlook and heightened policy uncertainty, particularly stemming from US trade actions.
• Closely monitor US trade policy developments, tariff implementations, and the status of US-China trade negotiations as these are key catalysts for market sentiment and economic performance.
• Prepare for increased market volatility and review exposures to sectors sensitive to trade disruptions and rising inflation, considering appropriate risk management strategies.
• Evaluate regional allocations, noting the divergence between the maintained growth forecast for China and downgraded outlooks for the US, Europe, and Japan, which may warrant strategic adjustments.