Global growth forecast to flatline as tariffs add to strains

The World Bank has warned that global economic growth is expected to stall this year, amid concerns that new U.S. tariff policies could shock trade. The projected growth rate of 2.7% would be the weakest economic performance since 2019, excluding the sharp contraction during the peak of the COVID-19 pandemic.

Ayhan Kose, the World Bank’s deputy chief economist, stated that this growth rate is “bearable” for the world but insufficient to improve living standards in both developed and poorer nations. He cautioned that trade tariffs threatened by U.S. President-elect Donald Trump on imported goods could have repercussions on the global economy.

The prospect of the U.S. imposing higher tariffs on imported goods has many world leaders worried, as it would increase the cost for businesses selling goods in the world's largest economy. Tariffs are a central part of Trump's economic vision, which he argues is a way to boost U.S. economic growth, protect jobs, and increase tax revenue. He has threatened to impose tariffs on China, Canada, and Mexico on his first day in office next week.

The U.S. is the world's largest importer. Official figures show that China, Mexico, and Canada account for around 40% of its $3.2 trillion (£2.6 trillion) in annual imports. Kose said that "escalating trade tensions between major economies" is one of the World Bank's biggest concerns for the global economy in 2025. The World Bank's goal is to promote long-term economic development.

Other concerns include interest rates remaining higher for longer, and increased policy uncertainty, which is hitting business confidence and investment. The World Bank said that even if the U.S. increased tariffs on imports from all countries by 10%, global growth would be reduced by 0.2% if countries did not retaliate. Kose added that the global economy could be hit harder if they did retaliate.

Kose said: "Anytime you put restrictions on trade, there are adverse consequences and those consequences are typically borne by the country that imposes the restrictions." He stated that the low growth rate forecast for the global economy in 2025 means that living standards will not improve "at the pace that we have seen in the past." He noted that the average growth rate was over 3% per year in the decade before the pandemic. He also added: "Over a longer period of time, the fact that we see growth numbers coming down is a concern for us."

Economic growth is widely regarded as the basis for reducing poverty and funding public services such as healthcare and education. It is also key to creating jobs and raising wages, at a time when inflation in the Eurozone, the UK, and the U.S. remains above the 2% target set by central banks. Governments around the world are struggling to find different ways to boost economic growth, and Kose warned that there are no magic solutions.

Kose said: "The bottom line is that there is no silver bullet for boosting economic growth. Countries need to think about what policies they can implement." In the UK, the government is focusing on the artificial intelligence industry, while in the U.S., Trump wants to cut taxes and regulation. Expanding manufacturing capacity is a priority for India, while China is taking steps to increase consumer spending.