Opinion World Bank report underlines continued uncertainty but India’s performance holds hopes of trade deals

The 2020s have already seen major shocks to the global economy such as the Covid pandemic and the Russia-Ukraine conflict. There is now another shock to contend with. According to the World Bank, “increased trade barriers and heightened policy uncertainty” are causing “a notable deterioration of the outlook”. In its latest Global Economic Prospects report, the Bank has revised downwards its forecast for global growth this year to 2.3 per cent, down 40 basis points from its January estimate. To put this growth estimate in perspective, excluding periods of global recession, this is the “weakest performance in 17 years”. In April, the International Monetary Fund (IMF) also estimated global growth to slow to 2.8 per cent in 2025. In its report, the World Bank has also projected global growth to average just about 2.5 per cent between 2020 and 2027 — this is the “slowest pace of any decade since the 1960s”. This is a remarkable deceleration.

The report’s stark warning that “many of the forces behind the great economic miracle of the last 50 years… have swung into reverse” is worrying, particularly for developing economies. This group of countries has already seen a steady slowing in economic momentum — growth has come down sharply from averaging 5.9 per cent in the 2000s to 3.7 per cent in the 2020s, as per the report. It should perhaps not come as a surprise that this is in line with the slowdown in global trade. And the “upheaval”, which has caused the drastic scaling down of global growth and trade expectations this year, continues. After another round of talks in London, the US and China are now said to have agreed to a “framework”. Deals with most countries remain a work in progress. India is “hopeful” that an agreement with the US will be reached before the 90-day pause on the Liberation Day tariffs ends in the second week of July. Amid this uncertainty, the Bank now expects global trade volume to grow at just 1.8 per cent in 2025, a steep scaling down of 1.3 percentage points from its January projections.

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The World Bank report projects India to grow at 6.3 per cent in 2025-26, with both investments and exports expected to remain subdued. This forecast is in line with that of the IMF, which had in April pegged the country to grow at 6.2 per cent in its World Economic Outlook. These assessments are only marginally lower than the RBI’s most recent projection of 6.5 per cent. Expectations of a sharp uptick in the near term appear muted — the World Bank has pegged growth to average 6.6 per cent over the following two years.