Rising barriers, faltering global growth

The World Bank’s Global Economic Prospects report for 2025 delivers a sobering message: the world economy is slowing, and not because of a natural cooling after years of overheating, but because of self-inflicted wounds. Trade barriers are climbing, policy uncertainty is spreading, and the fragile recovery from the shocks of 2020–2024 is already losing steam. With growth projected at just 2.3 percent in 2025—its slowest pace outside outright recessions since 2008—the global economy is being choked by mistrust, fragmentation, and short-sighted politics.

This is not simply a matter of statistics. A weaker world economy translates into stalled progress on reducing poverty, widening gaps between rich and poor countries, and diminished resilience to future crises. It is also a sign that the very principles that once underpinned decades of prosperity—open trade, predictable policy, and international cooperation—are fraying. Unless leaders make bold and coordinated efforts to rebuild trust and renew commitment to multilateralism, we risk locking ourselves into an era of sluggish growth and deepening inequality.

The report highlights the sharp rise in tariffs across major economies, with U.S. effective tariff rates reaching their highest levels in nearly a century. These protectionist policies, justified in the name of national security or industrial policy, may offer short-term political wins, but their economic costs are undeniable.

Tariffs distort supply chains, raise consumer prices, and discourage investment. More insidiously, they inject uncertainty into the global system. Businesses, unsure whether trade rules will change overnight, delay or scale back long-term investment. This hesitancy creates a vicious cycle: less investment leads to weaker growth, which in turn fuels more protectionism as governments scramble to shield domestic industries.

The tragedy is that the world had already begun to benefit from decades of economic integration. Trade helped lift hundreds of millions out of poverty in emerging markets, fostered innovation, and delivered lower prices to consumers worldwide. Rolling back these gains under the banner of “economic sovereignty” is akin to burning the bridge we painstakingly built between prosperity and cooperation.

Perhaps the most alarming finding of the World Bank’s outlook is that emerging market and developing economies (EMDEs) are falling short in narrowing income gaps with advanced economies. Growth in EMDEs is expected to decelerate to 3.8 percent in 2025, leaving their per capita income convergence stalled.

This has two profound consequences. First, it undermines the fight against extreme poverty. Millions remain vulnerable to food insecurity, health crises, and joblessness, and slowing growth reduces governments’ capacity to expand safety nets or invest in education and infrastructure. Second, it erodes the fragile social contract in many countries. When economic aspirations are consistently frustrated, political instability, populism, and even conflict become more likely.

In regions like Sub-Saharan Africa and South Asia, where populations are young and growing, sluggish job creation is particularly dangerous. Without meaningful reforms to strengthen institutions, attract private investment, and improve labor markets, demographic dividends could easily become demographic disasters.

The report also reminds us that the global economy does not operate in a vacuum; it is deeply intertwined with the climate crisis. Extreme weather events, declining commodity prices, and disruptions to agriculture are already undermining growth prospects.

Here lies a bitter irony: just as the global economy slows, so too does our ability to invest in climate resilience and transition to green energy. If fiscal positions remain weak and growth continues to falter, governments may view climate action as a luxury rather than an urgent necessity. This would be a catastrophic miscalculation. Climate change is not a distant threat but a present drag on productivity and stability.

The solution must involve embedding climate resilience into economic planning, not treating it as an afterthought. Investments in renewable energy, sustainable agriculture, and resilient infrastructure can both generate jobs in the short term and build long-term stability. But these investments require predictable policy frameworks and international coordination—two ingredients currently in short supply. Uncertainty is more corrosive than bad policy. Investors can price in higher taxes or stricter regulations; they cannot plan for unpredictable policy swings or sudden trade wars. For small businesses in developing economies, this uncertainty is existential: access to financing, trade partnerships, and technology transfers all depend on trust in stable global rules.

This uncertainty is not only economic but political. Conflicts in Eastern Europe, the Middle East, and Africa have global spillovers, from refugee flows to energy market shocks. The fragmentation of global governance, with multilateral institutions increasingly sidelined, only deepens the instability. Without renewed commitment to dialogue and compromise, uncertainty will remain the defining feature of the global economy. The report’s conclusions are clear: the world needs coordinated policy action, not fragmented unilateralism.

Revive Multilateralism in Trade

The first step is rebuilding the credibility of the World Trade Organization and negotiating lasting agreements to reduce trade tensions. Trade rules must be updated to reflect modern realities, from digital services to climate-linked tariffs, but the principle of open and rules-based commerce must remain sacrosanct.

Support Vulnerable Economies

For EMDEs facing debt distress and conflict, international support is critical. Debt restructuring mechanisms, concessional financing, and targeted aid can provide breathing room. 

Anchor Inflation and Fiscal
Discipline

National policymakers must balance immediate concerns with long-term sustainability. Bringing inflation under control while strengthening fiscal positions through improved tax systems and smarter spending is crucial. Populist spending sprees may provide temporary relief, but they risk locking economies into cycles of instability.

Invest in People and Planet

Ultimately, growth is not just about GDP figures. It is about human capital, institutional strength, and climate resilience. Education, healthcare, labor market reforms, and green infrastructure are investments that pay long-term dividends, particularly in EMDEs where the potential for transformation is greatest.

The global economy is not yet doomed to stagnation. The World Bank’s report itself acknowledges upside possibilities: if major economies reach lasting agreements to reduce trade tensions, if conflicts stabilise, and if uncertainty recedes, growth could surprise on the upside. What the world faces today is not an inevitable cycle of boom and bust but a crisis of political will. The tools to restore growth—open trade, fiscal discipline, investment in human and natural capital—are well understood. The question is whether national leaders will prioritise long-term prosperity over short-term political gain.