Global Bank Significantly Lowers Forecast for Global Economic Growth

Global Bank Significantly Lowers Forecast for Global Economic Growth

The World Bank's Pessimistic Outlook: Global Economic Woes

It's no secret that the World Bank's latest economic outlook presents a gloomy picture. A quick glance reveals the predicted global economic growth in 2025 has taken a hit, falling from 2.7% in January to a paltry 2.3% now. This marks the slowest growth since the 2008 financial crisis in the absence of a recession.

The main culprit for this downturn lies on the surface. We're talking about President Trump's tariffs, which have cast a dark cloud over global trade. According to the World Bank, these tariffs could shrink global growth this year by as much as 20%. The situation looks particularly concerning for developing markets, which have already seen a plummet in direct foreign investment.

As Indermit Gill, Senior Vice President of Development Economics and Chief Economist for the World Bank Group, tells CNBC, "International disagreements, and especially in trade, have dealt a severe blow to many political arenas that once helped combat poverty and expand prosperity after the end of World War II."

It's important to note that the calamities plaguing global trade aren't the only problems facing the global economy. The World Bank's authors emphasize rising inflation, climate disruptions, and ballooning government spending as additional concerns.

The U.S., under President Trump's leadership, has unleashed a trade war on the world and is set to bear the brunt of it. This prediction is echoed by the authors of the Organisation for Economic Co-operation and Development (OECD). The World Bank has slashed the prediction for U.S. economic growth by 0.9% to 1.4%. A slightly smaller, although still significant, decrease is forecasted for the eurozone – 0.3% to 0.7%.

The World Bank's analysts warn that escalating trade tensions could further slow growth before the year ends. Conversely, things could improve if the two largest economies on the planet, the U.S. and China, manage to settle their trade dispute and put an end to their trade war.

"According to our analysis, if the current disagreements are resolved and tariffs are halved by the end of May, global growth could increase by approximately 0.2% in 2025 and 2026," asserts Gill.

Currently, Washington is embroiled in trade negotiations with more than a dozen countries. Already, the U.S. has struck a trade deal with the UK, with talks in progress with several other nations, including India. This week saw two-day trade talks between U.S. and Chinese delegations in London, where both sides agreed to uphold the terms of the temporary truce signed in Geneva on May 12 and continue negotiations to end the trade war. Negotiations with the European Union are in full swing. As a reminder, tariffs initially delayed by Trump in early April for three months will expire soon.

There's no need to question the accuracy of the World Bank's pessimistic outlook given the recent revisions to growth expectations for the global economy in 2025 and the predictions of other international economic and financial organizations, such as the OECD. Key factors contributing to the poor outlook include U.S. tariffs and President Trump's trade policy. The OECD, for instance, predicts a decrease in global growth in 2021 from 3.1% to 2.9%.

Overall:The World Bank's economic growth forecast for the globe has been pessimistic due to several factors, including the impact of U.S. tariffs and trade policies. To explain this pessimism, it's helpful to understand the secondary effects of these policies:

1. Increased trade tensions between nations lead to uncertainty and reduced foreign investment, which can result in slower economic growth.
2. Higher tariffs act as barriers to trade, limiting the volume of goods exchanged and impacting economic output.
3. Tariffs and trade wars create policy uncertainty for businesses and investors, discouraging investment and contributing to economic stagnation.
4. Developing economies are particularly vulnerable to these trade-related issues; they rely heavily on trade and foreign investment, which are disrupted by trade tensions and can lead to slower growth and increased economic hardship in these regions.

In summary, while the specific 2021 forecast details aren't provided, the ongoing trade tensions and policy uncertainty have contributed to a generally pessimistic outlook for global economic growth in recent years.

1. The pessimistic outlook for global economic growth, as presented by the World Bank, is primarily due to the adverse effects of trade policies and tariffs, specifically those implemented by the US.
2. As a result of these trade issues, businesses face policy uncertainty, hindering investments and potentially leading to economic stagnation, which is particularly detrimental to developing markets.

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