Global Economy To Face Headwinds Due To Trade Tensions, India's Growth Forecast Unchanged: World Bank

The World Bank has revised its global growth forecast to 2.3% for 2025, citing increased trade tensions and policy uncertainties as major challenges. This adjustment reflects a decrease from previous estimates, highlighting the impact of geopolitical conflicts and rising trade barriers on the global economy. The report underscores the need for swift corrective measures to prevent further deterioration in living standards worldwide.

India's economic outlook remains stable, with the World Bank maintaining its growth projection at 6.3% for FY26. This forecast aligns with earlier predictions made in April. However, India's export sector might face challenges due to weaker activity among key trading partners and increasing global trade barriers. The Indian economy is expected to grow slightly faster in subsequent years, reaching 6.5% in FY27 and 6.7% in FY28.

Global Economic Slowdown

The World Bank anticipates a slowdown in global economic growth, projecting a rate of 2.3% in 2025, which is 0.4 percentage points below January's forecast. Growth is expected to be 2.4% in 2026 and 2.6% in 2027. These projections reflect broader challenges faced by economies worldwide, including geopolitical tensions and protectionist trade measures that disrupt supply chains and fuel inflationary pressures.

Advanced economies are also expected to experience slower growth rates. The US is projected to grow by only 1.4% in 2025 before seeing slight improvements in subsequent years. Similarly, Europe's growth forecasts have been revised downward, with expectations of modest expansions over the next few years.

Emerging Markets Outlook

Despite challenges faced by advanced economies, emerging markets and developing economies are projected to show more robust growth rates. The World Bank forecasts these nations will expand by 3.8% in both 2025 and 2026, with a slight increase to 3.9% in 2027. Within this group, China's growth is expected to moderate as its economy matures.

The report highlights several downside risks that could impact global economic prospects further, including escalating trade barriers, persistent policy uncertainty, rising geopolitical tensions, and extreme climate events. These factors pose significant threats to economic stability and could hinder efforts to reduce poverty and boost job creation.

Trade Policy Uncertainty

The outlook for global economic growth largely depends on the evolution of trade policies worldwide. If trade restrictions escalate or policy uncertainty persists, it could lead to financial stress and lower growth rates than currently projected. Conversely, if major economies reach lasting agreements addressing ongoing trade disputes, it could ease tensions and improve prospects.

"Only six months ago, a soft landing appeared to be in sight: the global economy was stabilizing after an extraordinary string of calamities both natural and man-made over the past few years," said Indermit Gill, Senior Vice President and Chief Economist at The World Bank Group.

"That moment has passed," Gill added."The world economy today is once more running into turbulence. Without a swift course correction,the harm to living standards could be deep."

The International Monetary Fund had previously cut India's FY26 growth forecast from an earlier estimate due to similar concerns about trade risks stemming from US tariff policies. The US had announced a reciprocal tariff on Indian goods but later reduced it temporarily,giving some relief amid ongoing trade tensions.