World Bank Slashes Global Economic Growth

The World Bank has slashed its 2025 global growth forecast, citing trade tensions and policy uncertainty. 

The report released during the week said global gross domestic product (GDP) growth to 2.3 down from the 2.7 percent. Focusing to countries like Uganda or Low Income Countries (LICs), the report said the incidence of violence has remained high, mainly reflecting violent conflicts in East Africa and the Sahel.   

The report said the number of displaced people has increased, driven by conflicts in Sub-Saharan Africa.   It said the median consumer price inflation in LICs has been on a downward trend since early 2023, but a resurgence in food inflation caused it to spike in mid-2024, and it has edged up again more recently.          

According to the report, in 2024, floods in East Africa and the Sahel and droughts in Southern Africa adversely affected some harvests, raising local food prices.               

However, recent satellite data show that, since the start of 2025, drought conditions have worsened in East Africa, with Rwanda and Uganda particularly affected. In early 2025, food price inflation remained very high in some LICs. 

The report says growth in fragile and conflict-affected situations (FCS) is forecast to weaken marginally from 5.7 percent in 2024 to 5.5 percent in 2025, before picking up to an average of 7.0 percent a year in 2026-27.     

This acceleration partly reflects stronger growth in Uganda due to oil-related capital investment and the anticipated start of oil production in 2027.       

Conversely, in non-resource-rich countries, growth is forecast to steady at 5.7 percent in 2025 and to an average of 6.1 percent a year in 2026-27. The momentum is driven by an oil discovery boom in Uganda, where oil production is expected to start during the forecast horizon, as growth plateaus in most other economies.       

Per capita income in Sub Saharan Africa is projected to expand by an average of 1.6 percent a year in 2025-27, with growth in 2025 revised down by 0.4 percentage point.   

Per capita income growth in LICs is expected to increase from 1.8 percent in 2024 to an average of 3.0 percent a year in 2025-27, with per capita income growth in non-FCS LICs averaging 3.9 percent a year.

However, these growth rates in average per capita incomes are not enough to close the gap with their pre pandemic trend by the end of 2027.   

Indeed, per capita incomes growth in FCS LICs, excluding the Democratic Republic of Congo and Ethiopia—the two countries driving growth in this group—is expected to be only 1.7 percent a year in 2025-27. 

In the Democratic Republic of Congo, growth slowed to 4.9 percent in 2024, as violent conflict in the eastern part of the country disrupted mining operations and resulted in the internal displacement of several million people.

In Ethiopia, growth moderated to 6.1 percent following foreign exchange market reforms and tightermonetary policies. 

Per capita incomes in more than one-third of 24 LICs are expected to be below pre-pandemic projections by the end of 2027, down from half in 2024.   

At the global level, the report said after a succession of adverse shocks in recent years, the global economy is facing another substantial headwind, with increased trade tension and heightened policy uncertainty.     

This is contributing to a deterioration in prospects across most of the world’s economies. For emerging market and developing economies (EMDEs), the ability to narrow per capita income gaps with richer countries, boost job creation, and reduce extreme poverty remains insufficient.     

Downside risks to the outlook predominate, including an escalation of trade barriers, persistent policy uncertainty, rising geo- political tensions, and an increased incidence of extreme climate events. 

Conversely, policy uncertainty and trade tensions may ease if major economies succeed in reaching lasting agreements that address ongoing trade disputes.     

Global Outlook.   

Global growth is slowing due to a substantial rise in trade barriers and the pervasive effects of an uncertain global policy environment.   

Growth is expected to weaken to 2.3 percent in 2025, with deceleration in most economies relative to last year.     

This would mark the slowest rate of global growth since 2008, aside from outright global recessions.     

In 2026-27, a tepid recovery is expected, leaving global output materially below January projections. Progress by emerging market and developing economies (EMDEs) in closing per capita income gaps with advanced economies and reducing extreme poverty is anticipated to remain insufficient.                                 

The outlook largely hinges on the evolution of trade policy globally. Growth could turn out to be lower if trade restrictions escalate or if policy uncertainty persists, which could also result in a build-up of financial stress. Other downside risks include weaker-than-expected growth in major economies with adverse global spillovers, worsening conflicts, and extreme weather events.                                 

On the upside, uncertainty and trade barriers could diminish if major economies reach lasting agreements that address trade tensions.                       

The ongoing global headwinds underscore the need for determined multilateral policy efforts to foster a more predictable and transparent environment for resolving trade tensions, some of which stem from macroeconomic imbalances.                     

Global policy efforts are also needed to confront the deteriorating circumstances of vulnerable EMDEs amid prevalent conflict and debt distress, while addressing long-standing challenges, including the effects of climate change.    

National policy makers need to contain risks related to inflation as well as strengthen their fiscal positions by raising additional domestic revenues and reprioritizing spending.      

To facilitate job creation and boost long-term growth prospects in EMDEs, reforms are essential to enhance institutional quality, stimulate private investment growth, develop human capital, and improve labor market functioning.