Author: Andrea Shalal
WASHINGTON (Reuters) – The World Bank warned on Thursday that U.S. comprehensive tariffs of 10 percent could reduce already weak global economic growth of 2.7 percent in 2025 by 0.3 percentage points if U.S. trading partners retaliate with their own tariffs.
US President-elect Donald Trump, who takes office on Monday, has proposed a 10 percent tariff on global imports, a punitive 25 percent tariff on imports from Canada and Mexico until they crack down on drugs and migrants crossing the U.S. border, and a 60 percent tariff on Chinese goods. Some countries, including Canada, have already vowed retaliation.
The World Bank said simulations using a global macroeconomic model showed that a 10 percent increase in U.S. tariffs on all trading partners in 2025 would reduce global growth by 0.2 percentage points over the year, and proportional retaliation from other countries could worsen the blow. to growth.
It said those estimates were consistent with outside studies showing that a 10 percent increase in U.S. tariffs could “reduce the level of U.S. GDP by 0.4%, while retaliation from trading partners would increase the overall negative effect to 0.9%.” “
But it notes that US growth could also pick up 0.4 percentage points in 2026 if US tax cuts are extended, with only small global spillovers.
The Bank for International Settlements on Thursday also weighed in, warning of increased “frictions and fragmentation” in global trade and calling a full-scale trade war between Washington and other countries a “palpable risk scenario.”
The World Bank’s latest Global Economic Outlook, published twice a year, forecasts flat global economic growth of 2.7% in 2025 and 2026, the same as in 2024, and warns that developing economies now face the weakest long-term growth prospects since 2000.
The Multilateral Development Bank said that foreign direct investment in developing economies is now about half of what it was in the early 2000s, and that global trade restrictions are five times the 2010-2019 average.
It said growth in developing countries is expected to reach 4% in 2025 and 2026, well below pre-pandemic estimates due to high debt, weak investment and sluggish productivity growth, along with the rising costs of climate change.
Total output in emerging markets and developing economies is expected to remain more than 5% below the pre-pandemic trend through 2026, due to the pandemic and subsequent shocks, it said.
“The next 25 years will be a tougher demand on developing economies than the last 25,” World Bank chief economist Indermit Gil said in a statement, urging countries to adopt domestic reforms to boost investment and deepen trade relations.
Economic growth in developing countries fell from nearly 6% in the 2000s to 5.1% in the 2010s and averaged around 3.5% in the 2020s, the bank said.
It also said the gap between rich and poor countries is widening, with average per capita growth rates in developing countries, excluding China and India, averaging half a percentage point below those in rich economies since 2014.
The gloomy outlook echoes comments made last week by the International Monetary Fund’s chief executive, Kristalina Georgieva, ahead of the global lender’s own new forecast, which will be released on Friday.
“Over the next two years, developing economies could face serious headwinds,” the World Bank report said.
“High global policy uncertainty could undermine investor confidence and limit financing flows. Rising trade tensions could reduce global growth. Persistent inflation could delay expected interest rate cuts.”
The World Bank said it sees more downside risks to the global economy, citing a rise in trade-distorting measures by mostly advanced economies and uncertainty over future policies that are slowing investment and growth.
Global trade in goods and services, which grew by 2.7% in 2024, is expected to average around 3.1% in 2025-2026, but to remain below the pre-pandemic average.
