The global economy is facing a significant challenge, as recent forecasts indicate it is set to grow at its slowest pace in six years due to the implications of tariffs imposed by the United States. According to a warning from the World Bank, global growth is projected to reach only 2.7% this year, marking the weakest performance since 2019. This figure excludes the steep contraction observed during the heights of the Covid-19 pandemic. Although this growth rate may be deemed manageable, especially by the deputy chief economist Ayhan Kose, it falls short of the required pace needed to improve living standards in both developed and developing countries alike.
The concern arises primarily from the potential introduction of increased tariffs on imports to the US, a strategy that President-elect Donald Trump views as central to his economic policy. These tariffs are seen as a means to stimulate growth in the US economy, protect job security, and bolster tax revenues. However, they are expected to create a ripple effect that could escalate tensions in global trade relations. For instance, US tariffs could particularly burden countries that rely heavily on exporting goods to the largest economy in the world.
The dynamics surrounding US tariffs are especially worrying for global leaders, as they could raise the cost for businesses attempting to sell their products in the United States. With China, Mexico, and Canada collectively accounting for about 40% of the $3.2 trillion worth of imports into the US, the potential repercussions are substantial. Trump’s administration has signaled that he plans to impose tariffs on these significant trading partners upon taking office.
Further elaborating on the potential consequences of these tariffs, Kose has warned that escalating trade tensions between major economies represent one of the most pressing concerns for the global economy, particularly as we look towards 2025. Such tensions are likely to create an atmosphere of uncertainty that could deter business investment and ultimately stifle economic growth. The World Bank is committed to promoting long-term economic growth and recognizes that a stable, predictable environment is essential for business confidence and investment.
Interestingly, Kose has pointed out that even a modest increase of 10% in US tariffs on every importing country could lead to a 0.2% decrease in global economic growth, assuming no retaliatory measures are taken. Should other nations respond to the tariffs, the impact on the global economy could be more severe. He emphasizes that imposing trade restrictions often brings about undesirable consequences primarily affecting the country that enacts them.
The current forecast for global economic growth has led to concerns that the rate of improvement in living standards will not match that of previous decades, where growth rates typically exceeded 3% annually. The looming threat of prolonged low growth poses challenges to the reduction of poverty and the funding of essential public services like healthcare and education. At a time when inflation persists above the 2% target set by various central banks, including those in the eurozone, UK, and US, this could hinder the creation of jobs and wage growth.
As different governments struggle to find viable strategies to spur economic growth, Kose cautions against the expectation of quick fixes. He humorously states that “there is no ozempic for economic growth,” underscoring the need for thoughtful and well-designed policies tailored to individual countries’ circumstances. In the UK, there is a growing focus on the potential of the artificial intelligence industry as a pathway to stimulate progress. Meanwhile, in the US, Trump’s priority is centered around cutting taxes and reducing regulation, while India is committed to enhancing manufacturing capacity, and China is strategizing to increase domestic consumer spending. Thus, the global economic landscape continues to evolve amid uncertainty and the quest for effective growth strategies.
