World Bank sharply cuts global growth outlook on trade turbulence

The World Bank has sharply lowered its global growth forecast for 2025 to 2.3% from 2.7%, citing trade uncertainty as a primary headwind, which would be the slowest pace since 2008 outside of recessionary periods. The report also cut the U.S. growth forecast by 0.9 percentage points to 1.4% and the Euro area by 0.3 percentage points to 0.7%. According to the World Bank, resolution of current trade disputes could boost global growth by approximately 0.2 percentage points over 2025 and 2026.

Analysis

The World Bank has significantly revised its global economic growth forecast for 2025 downwards to 2.3% from a previous estimate of 2.7%, marking what would be the slowest rate of global expansion since 2008, excluding outright global recessions. This sharp cut is primarily attributed to pervasive trade uncertainty, which the Bank identifies as upending policy certainties instrumental in past economic prosperity. Accompanying this global revision, the U.S. growth forecast for 2025 has been reduced by 0.9 percentage points to 1.4%, and the Euro area's GDP expectation by 0.3 percentage points to 0.7%. The report underscores that escalating trade tensions could further dampen growth, while conversely, the resolution of current trade disputes, potentially involving a halving of tariffs from late May 2025 levels, could bolster global growth by an average of 0.2 percentage points over 2025 and 2026. This pessimistic outlook is echoed by other institutions like the Organisation for Economic Co-operation and Development (OECD), which also recently lowered its 2025 global growth forecast to 2.9%, citing similar concerns around trade and tariff-related uncertainty. The associated sentiment signals reflect a 'strongly negative' outlook, reinforcing the challenging macroeconomic environment depicted.

Key Decisions for Investors

• Given the significant downward revisions to global growth forecasts and the prevailing trade uncertainties, investors should consider adopting a more cautious and defensive investment posture.
• Closely monitor ongoing trade negotiations, particularly involving the U.S., China, and the European Union, as any definitive agreements could materially alter growth expectations and market sentiment.
• Re-evaluate exposure to cyclical sectors and geographies most sensitive to global trade disruptions, potentially increasing allocations to assets with lower correlation to global economic slowdowns until there is greater clarity on the trade policy landscape.