Global Economy Slows Sharply Amid Trade Tensions

Strategic Insights -

The global economy is projected to slow sharply this year due to President Trump's trade policy, which is disrupting international commerce and increasing economic uncertainty, the World Bank said on Tuesday. Despite the weakening outlook, the global economy is not expected to fall into a recession. However, the trade tension is setting the stage for the weakest decade of growth since the 1960s, with economic development in many of the poorest parts of the world coming to a standstill.

Key Takeaways:

  • The World Bank forecasts a sharp slowdown in global output to 2.3 percent in 2025 from 2.8 percent last year, down from the 2.7 percent growth forecast in January.
  • The trade tension is setting the stage for the weakest decade of growth since the 1960s, with economic development in many of the poorest parts of the world coming to a standstill.
  • The United States enacted across-the-board 10 percent tariffs on imports and 50 percent tariffs on steel and aluminum imports this year, pushing the average effective U.S. tariff rate to the highest level in a century.
  • The World Bank estimates that if global tariff rates were cut in half, global growth would be 0.2 percentage points stronger over the next two years.
  • Developing countries, which have some of the highest tariffs in the world, should also lower their trade barriers to help stimulate economic growth, according to the World Bank.
  • Growth in emerging markets and developing economies is expected to continue to outpace expansion in advanced economies this year, but growth remains relatively sluggish in low-income countries.
  • The country facing the biggest downgrade from the World Bank's projections in January is the United States, which initiated the trade fights, with U.S. output poised to slow to 1.4 percent this year, from 2.8 percent in 2024.

Statistics:

  • Global output forecast: 2.3 percent in 2025 (down from 2.8 percent last year and 2.7 percent forecast in January).
  • Average effective U.S. tariff rate: highest level in a century.
  • Growth in emerging markets and developing economies: outpacing expansion in advanced economies this year.
  • Growth in low-income countries: relatively sluggish, not making up for economic losses incurred during the pandemic and its aftermath.
  • China's export growth: expected to slacken due to U.S. tariffs.
  • Shipments to the United States from China in May: fell more than 34 percent from a year earlier, the steepest decline since 2020.

Sources:

  • The New York Times, Tuesday, June 25, 2019.