Global Economy Faces Stagnation as Trade Tariffs Loom Over Growth Prospects

The World Bank has projected that global economic growth will stagnate at 2.7% this year, matching the lowest rates since 2019 excluding the pandemic’s peak. This growth rate, described by World Bank’s deputy chief economist Ayhan Kose, is sufficient for stability but unlikely to enhance living standards across both affluent and developing nations. The threat of new tariffs introduced by the incoming US administration, especially those targeting major trading partners like China, Canada, and Mexico, poses a significant risk to international trade dynamics.

With the US being the largest importer globally and these countries accounting for a substantial portion of its imports, escalated tariffs could have ramifications that ripple through the world economy. Kose emphasized that trade tensions are among the World Bank’s foremost concerns as they could stifle global growth. He noted that a mere increase of 10% in US import tariffs could knock down global growth by 0.2%—a figure that escalates with retaliatory actions from trade partners.

Moreover, the World Bank expressed concern about persistent high interest rates and the uncertainty of financial policies, which together dampen investment and business confidence. Kose remarked that the anticipated growth rate would not support the crucial advancements in living standards that have been enjoyed historically, particularly indicating a worrying trend toward a decrease in long-term economic growth rates. This stagnation jeopardizes poverty reduction efforts and the ability to fund essential public services, thus amplifying the urgency for countries to devise effective economic policies. In response to these challenges, different nations are exploring various strategies: the UK is investing in the AI sector, the US is pursuing tax cuts and deregulation, while Indian policymakers focus on boosting manufacturing and China aims to enhance consumer spending.