World Bank warns that US tariffs could reduce global growth outlook

Simulations Plus

16/01/2025 18:00

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      Simulations show tariffs could cut US GDP by 0.9% if
others
retaliate
    

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      Trade policy shifts, uncertainty creating headwinds
    

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      Developing countries face lowest long-term growth since
2000 
    

  
    By Andrea Shalal
       WASHINGTON, Jan 16 (Reuters) - The World Bank on
Thursday warned that U.S. across-the-board tariffs of 10% could
reduce already lackluster global economic growth of 2.7% in 2025
by 0.3 percentage point if America's trading partners retaliate
with tariffs of their own.
    Such tariffs, promised by U.S. President-elect Donald Trump,
could cut U.S. growth - forecast to reach 2.3% in 2025 - by 0.9%
if retaliatory measures are imposed, the bank said, citing
economic simulations. But it noted that U.S. growth could also 
increase by 0.4 percentage point in 2026 if U.S. tax cuts were
extended, it said, with only small global spillovers.
    Trump, who takes office Monday, has proposed a 10% tariff on
global imports, a 25% punitive duty on imports from Canada and
Mexico until they clamp down on drugs and migrants crossing
borders into the U.S., and a 60% tariff on Chinese goods.
    The World Bank's latest Global Economic Prospect report,
issued twice yearly, forecast flat global economic growth of
2.7% in 2025 and 2026, the same as in 2024, and warned that
developing economies now faced their weakest long-term growth
outlook since 2000.
    The multilateral development bank said foreign direct
investment into developing economies was now about half the
level seen in the early 2000s and global trade restrictions were
five times higher than 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 burdens, weak investment and sluggish productivity
growth, along with rising costs of climate change.
    Overall output in emerging markets and development economies
was expected to remain more than 5% below its pre-pandemic trend
by 2026, due to the pandemic and subsequent shocks, it said.
    "The next 25 years will be a tougher slog for developing
economies than the last 25," World Bank chief economist Indermit
Gil said in a statement, urging countries to adopt domestic
reforms to encourage investment and deepen trade relations.
    Economic growth in developing countries dropped from nearly
6% in the 2000s to 5.1% in the 2010s and was averaging about
3.5% in the 2020s, the bank said. 
    It said the gap between rich and poor countries was also
widening, with average per capita growth rates in developing
countries, excluding China and India, averaging half a
percentage point below those in wealth economies since 2014.
    The somber outlook echoed comments made last week by the
managing director of the International Monetary Fund, Kristalina
Georgieva, ahead of the global lender's own new forecast, to 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 undercut investor
confidence and constrain financing flows. Rising trade tensions
could reduce global growth. Persistent inflation could delay
expected cuts in interest rates."
    The World Bank said it saw more downside risks for the
global economy, citing a surge in trade-distorting measures
implemented mainly by advanced economies and uncertainty about
future policies that was dampening investment and growth. 
    Global trade in goods and services, which expanded by 2.7%
in 2024, is expected to reach an average of about 3.1% in
2025-2026, but to remain below pre-pandemic averages.    

 (Reporting by Andrea Shalal; Editing by Chizu Nomiyama)
 ((andrea.shalal@tr.com; +1 202-815-7432;))