Trade policy volatility a major drag on global growth

The World Bank has revised its global growth forecast for 2025, downward by 0.4 percentage points to 2.3%, citing escalating tariffs and mounting policy uncertainty as major headwinds affect nearly all economies.In its semi-annual Global Economic Prospects report published recently, the multilateral lender downgraded growth projections for majority of the world’s economies — including the United States, China, and Europe — as well as six key emerging market regions.These downward revisions come against the backdrop of increased global trade frictions that have intensified since President Donald Trump assumed office.President Trump’s implementation of a series of tariff increases has pushed the effective US tariff rate from below 3% to the mid-teens — its highest level in nearly a century — prompting retaliatory measures from China and other trading partners.The World Bank joins a growing number of institutions that have reduced their growth outlooks in response to trade policy volatility. While US officials maintain that any near-term drag will be counterbalanced by anticipated investment growth and pending tax reforms, the report stops short of predicting a recession, according to Reuters.However, it warns that global growth in 2025 is expected to be the weakest in a non-recession year since 2008.Looking further ahead, global GDP growth is projected to average just 2.5% through 2027—marking the slowest pace of any decade since the 1960s.The World Bank also downgraded its forecast for global trade growth to 1.8% in 2025, down from 3.4% in 2024 and well below the 5.9% average seen in the 2000s. This projection reflects tariffs in place as of late May, including a 10% US tariff on imports from most countries. It does not account for additional tariff hikes announced in April but deferred until July 9 pending further negotiations.Inflation is expected to remain elevated, with global consumer prices forecast to rise by 2.9% in 2025, driven by higher import costs and ongoing labor market tightness."The risks to the global outlook remain firmly tilted to the downside,” the report notes. According to World Bank modeling, a further 10 percentage point increase in average US tariffs — along with proportional retaliation — could reduce global growth by an additional 0.5 percentage points in 2025.Such a scenario could lead to a sharp contraction in global trade in the latter half of the year, accompanied by a steep decline in business and consumer confidence, increased market volatility, and broader financial instability.Despite these risks, the report assesses the likelihood of a global recession as less than 10%.Meanwhile, Qatar’s economy will clock a real GDP growth of 2.4% this year, 5.4% in 2026 and 7.6% in 2027, the World Bank said in its latest forecast.Qatar will outperform the other five GCC countries in real GDP growth in 2026 and 2027, World Bank data reveal.According to the World Bank forecast, Bahrain’s economy will grow 3.5% this year, 3% in 2026 and 2.8% in 2027.For Kuwait, the World Bank forecasts a real GDP growth of 2.2% this year, and 2.7% in both 2026 and 2027.Oman, the World Bank forecast says, will grow at 3% this year, 3.7% in 2026 and 4% in 2027.According to the World Bank forecast, Saudi Arabia’s real GDP will grow at 2.8% this year, 4.5% in 2026 and 4.6% in 2027.UAE, the World Bank forecast says, will grow at 4.6% this year and 4.9% in both 2026 and 2027.The World Bank said growth in members of the Gulf Cooperation Council (GCC) is forecast to increase to 3.2% in 2025, 4.5% in 2026, and 4.8% in 2027.The phase-out of oil production cuts is expected to lead to rising oil production, despite projected lower oil prices amid weakening global demand, it said.