Blaming heightened trade tensions and policy uncertainty, the World Bank has shaved almost half a percentage point off its global growth forecast for this year.

Despite the bleak outlook, bright spots remain – notably in India and some Southeast Asian economies where growth is forecast to be almost two to three times faster than the world average. 

In its latest Global Economic Prospects report released in Washington on June 10, the bank says international trade turmoil has cut growth forecasts in nearly 70% of all economies – across all regions and income groups. 

World growth is now projected to slow to 2.3% in 2025, down from a 2.7% forecast at the start of the year and, outside global recessions, the slowest pace since 2008.

For the next two years, economic activity is expected to remain subdued with growth of 2.4% in 2026 and 2.6% in 2027.

If these forecasts materialize, the bank says average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.

‘On the frontlines of a global trade conflict’

“Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,” says  M. Ayhan Kose, the bank’s deputy chief economist.

“The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm,” he says.

“With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.” 

Asia remains world’s growth engine

India is expected to remain the fastest-growing economy in Asia, although expansion is forecast to slow from an estimated 6.5% in 2024 to 6.3% this year – down four-tenths of a percentage point from the bank’s forecast in January.

Japan’s anaemic economy is forecast to expand only 0.7%, half a point down from the January forecast but up from only 0.2% last year.

For emerging and developing economies in East Asia and the Pacific, growth is projected to slow from 5.0% last year to 4.5% this year – down one-tenth of a point from the January forecast.

The forecast for China mirrors the regional trend, but is unchanged from January.

In addition to higher trade barriers, policy uncertainty and the broader global outlook, the slowdown in East Asia and the Pacific is likely to reflect the impact of weaker confidence in investment, exports, and consumption in the region, the bank says.

In 2026 and 2027, regional growth is expected to remain subdued at 4%, slightly below previous projections and potential growth estimates.

Weak Chinese consumer demand

“In China, the slowdown in growth reflects the impact of higher trade barriers and policy uncertainty, which are assumed to be offset by announced fiscal policy support measures,” the bank says.

“Consumption growth is expected to remain soft alongside low confidence and a subdued property sector. Export growth is expected to slow in 2025 as the impact of higher tariffs is felt and the earlier boost from the front-loading of exports fades.”

China’s growth is projected at 4% in 2026 and 3.9% in 2027  “in line with slowing potential output growth, reflecting the effects of declining productivity growth, an aging population, and high debt levels”.

For the rest of the region, trade policy uncertainty, reduced confidence, and weaker external demand are likely to curtail exports and private investment.

Bright spots in Asean

Among emerging and developing Southeast Asian economies, Vietnam, the Philippines and Indonesia are expected to grow at least twice as fast as the world economy this year.

Growth this year is now forecast at 5.8% in Vietnam, 5.3% in the Philippines, 4.7% in Indonesia, 4.0% in Cambodia, 3.9% in Malaysia, 3.5% in Laos and 1.8% in Thailand. Myanmar’s economy is forecast to shrink 2.5%.

“Some economies will benefit from fiscal policy support – such as social spending programmes and public investment in Indonesia, Malaysia, Thailand and Vietnam – but the full macroeconomic effects of higher trade barriers, which are hard to predict, could weigh on growth,” the bank says.

At the same time, Cambodia, Thailand and Vietnam have “large exposures to global trade”.

Risks to regional outlook

The bank says risks to the wider regional outlook “have intensified since January, including the possibility of a reversion to previously announced higher trade barriers and persistently elevated policy uncertainty.

“Other downside risks include tighter global financial conditions, spillovers from weaker growth in major economies, increased geopolitical tensions, and natural disasters.

“There are, however, some upside risks associated with larger-than-expected fiscal expansions in China or major advanced economies and productivity gains from technological adoption.”

On the global outlook, the bank says growth could rebound faster than expected if major economies are able to mitigate trade tensions – which would reduce overall policy uncertainty and financial volatility.

“If today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2 percentage point stronger on average over the course of 2025 and 2026,“ it says.  

Need for partnerships and diversification

Faced with rising trade barriers, “developing economies should seek to liberalize more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade – including through regional agreements.

“Policymakers should focus on mobilizing domestic revenues, prioritizing fiscal spending for the most vulnerable households, and strengthening fiscal frameworks. Finally, to accelerate economic growth, countries will need to improve business climates and promote productive employment.”