Washington, D.C. The World Bank’s Global Economic Prospects report predicts that this year will see the world economy slow to its weakest level since the 2008 financial crisis, but that a global recession can be prevented if rising trade disputes are settled.
Released on June 10, 2025, the sobering outlook points to widespread economic downgrades and a dire outlook for the remainder of the decade, particularly for developing economies.
A Decade of Reduced Development
Worldwide growth is poised to decelerate to 2.3 per cent by 2025, a shade higher than half a point below its original forecast at the end of last year. It is not being predicted that there will be a full-blown global recession – but if forecasts prove accurate for the next two years.
The average global expansion in the first seven of the 2020s would be slower than in any decade since the 1960s. This extended period of sluggish growth implies that headwinds for global economic dynamism remain entrenched.
Causes of the Recession
Elevated trade tensions and policy uncertainty are the main factors in the gloomy sentiment. The report indirectly points to an increase in trade barriers – such as tariffs – that have increased costs and prompted retaliatory steps around the world.
It’s holding back investment and demand for capital goods, which account for over a quarter of aggregate demand. There are other issues beyond trade, including tighter labour markets driving inflation and a slowdown in global trade volumes, at work, too. Investment growth, meanwhile, has also decelerated despite record high levels of global debt.
Impact on Developing Economies
The slowing is especially troubling for emerging economies. Average annual growth within these countries has steadily ratcheted down over the past three decades, from north of 6% in the 2000s to below 4% in the 2020s.
This trend reflects the fall in world trade. The report forecasts a deceleration this year in almost 60% of all developing economies; their rate of growth is unlikely to exceed 3.8% in 2025. This is more than a percentage point lower than the decade average. Slower growth mechanically undermines the ability of these countries to generate job creation, extreme poverty reduction and per capita income convergence with the advanced world.
Average per capita income in developing countries is expected to grow by 2.9% in 2025 – 1.1 percentage points lower than the average of the twenty-first years of the century. But the World Bank cautioned that to the extent that developing economies (excluding China) grow at a projected 4% GDP rate in 2027, these and other countries would need another 20 years to recover their pre-pandemic growth trajectory.
Path Forward: Cooperation and Reform
The World Bank is calling on policymakers to act decisively to help to combat these risks. Wrapping up current trade disputes, for example, by cutting tariffs to half of their level in May 2025, would raise global GDP by an average of 0.2 percentage points in 2025 and 2026. The report urges renewed progress on integration with partners, further pro-growth reforms and strengthening fiscal resilience.
“Dialogue between the major economies could lead to a more stable and prosperous path for the world economy”, said World Bank Group Chief Economist Indermit Gill, who added that a cooperative workout is necessary more than ever, and the world urgently needs to cut down on trade barriers and policy ambiguity.
“For the developing countries, the report recommends that investment and trade links should be fostered, diversified trade should be sought and domestic revenues mobilised and customised to spend more on vulnerable households.
The message is both stark: the challenges are immense – but collective action and reforms that are strategic can still help guide the world economy to a more resilient and equitable future.
