Trade Tensions, Inflation Drag Global Economy Down – World Bank

COLOMBO (News 1st) - COLOMBO (News 1st); The World Bank has warned that global economic growth is set to slow to 2.3% in 2025, marking the weakest pace since 2008 outside of full-blown recessions. 

According to the World Bank’s latest Global Economic Prospects report, the slowdown is driven by rising trade tensions, policy uncertainty, and inflationary pressures, which have led to growth downgrades in nearly 70% of economies worldwide, across all regions and income levels.

The report says that a global recession is not expected. Nevertheless, if forecasts for the next two years materialize, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s.

Growth is expected to slow in nearly 60 percent of all developing economies this year, averaging 3.8 percent in 2025 before edging up to an average of 3.9 percent over 2026 and 2027. 

Low-income countries are expected to grow 5.3 percent this year—a downgrade of 0.4 percentage point from the forecast at the start of 2025. Tariff increases and tight labor markets are also exerting upward pressure on global inflation, which, at a projected average of 2.9 percent in 2025, remains above pre-pandemic levels.

The World Bank’s latest Global Economic Prospects report warns that slowing growth will impede developing economies in their efforts to spur job creation, reduce extreme poverty, and close per capita income gaps with advanced economies. 

It added that global growth could rebound faster than expected if major economies are able to mitigate trade tensions—which would reduce overall policy uncertainty and financial volatility. 

The report states that growth in Sri Lanka is forecast to decelerate to 3.5 percent this year, reflecting the scarring effects of the crisis, structural impediments to growth, and heightened global economic uncertainties