World Bank

The World Bank has slashed its 2025 global growth forecast, citing trade tensions and policy uncertainty as the United States imposed wide-ranging tariffs that weigh on global economic forecasts.

On Tuesday, the bank lowered its projection for global gross domestic product (GDP) growth to 2.3 percent in its latest economic prospects report, down from the 2.7 percent that it expected in January. This is the most recent in a series of downgrades by international organisations.

In its twice-yearly Global Economic Prospects report, the bank lowered its forecasts for nearly 70 percent of all economies, including the US, China and Europe, as well as six emerging market regions, from the levels it projected just six months ago before US President Donald Trump took office.

“That’s the weakest performance in 17 years, outside of outright global recessions,” said World Bank Group chief economist Indermit Gill.

Global growth and inflation prospects for this year and next have worsened because of “high levels of policy uncertainty and this growing fragmentation of trade relations”, Gill added.

“Without a swift course correction, the harm to living standards could be deep,” he warned.

By 2027, the World Bank expects global GDP growth to average 2.5 percent in the 2020s, which would be the slowest rate in any decade since the 1960s.

The Trump effect 

The gloomier projections come as Trump imposed a 10 percent tariff on imports from almost all US trading partners in April as well as higher rates on imports of steel and aluminium. He had initially also announced radically higher rates on dozens of these economies, which he has since suspended until early July.

Trump’s on-again off-again tariff hikes have upended global trade, increased the effective US tariff rate from below 3 percent to the mid-teens, its highest level in almost a century, and triggered retaliation by China and other countries.

He also engaged in tit-for-tat escalation with China, although both countries have hit pause on their trade war and temporarily lowered these staggering duties as well. But a lasting truce remains uncertain.

While the World Bank’s growth downgrade was proportionately larger for advanced economies, the bank cautioned that less wealthy countries have tricky conditions to contend with.

Commodity prices are expected to remain suppressed in 2025 and 2026, Gill said.

This means that some 60 percent of emerging markets and developing economies – which are commodity exporters – have to deal with a “very nasty combination of lower commodity prices and more volatile commodity markets”.

GDP downturn 

By 2027, while the per capita GDP of high-income economies will be approximately where it was in pre-pandemic forecasts, corresponding levels for developing economies would be 6 percent lower.

“Except for China, it could take these economies about two decades to recoup the economic losses of the 2020s,” Gill cautioned.

Even as GDP growth expectations have been revised downwards, inflation rates have been revised up, he said, urging policymakers to contain inflation risks.

Despite trade policy challenges, however, Gill argued that “If the right policy actions are taken, this problem can be made to go away with limited long-term damage.”

He urged for the “differential in tariff and non-tariff measures with respect to the US” to be quickly reduced by other countries, starting with the Group of 20, which brings together the world’s biggest economies.

“Every country should extend the same treatment to other countries,” Gill stressed. “It’s not enough to just liberalise with respect to the US. It’s also important to liberalise with respect to the others.”

The World Bank said developing economies could lower tariffs on all trading partners and convert preferential trade deals into pacts spanning the “full range of cross-border regulatory policies” to boost GDP growth.

Generally, wealthier countries have lower tariffs than developing countries, which could be seeking to protect budding industries or have fewer sources of government revenue.

This month, the Paris-based Organisation for Economic Co-operation and Development also slashed its 2025 global growth forecast from 3.1 percent to 2.9 percent, warning that Trump’s tariffs would stifle the world economy.

This came after the International Monetary Fund in April too cut its world growth expectations for this year on the effects of Trump’s levies, from 3.3 percent to 2.8 percent.

Saudi and Qatari payments settle Syria’s arrears, allowing World Bank and IMF to re-engage.

The World Bank says it will restart operations in Syria following a 14-year pause after the country cleared more than $15m of debt with financial backing from Saudi Arabia and Qatar.

The United States-based institution announced on Friday that Syria no longer has outstanding obligations to the International Development Association (IDA), its fund dedicated to low-income countries.

Earlier this week, Saudi Arabia and Qatar paid off Syria’s outstanding debts of approximately $15.5m, paving the way for renewed engagement with international financial bodies.

“We are pleased that the clearance of Syria’s arrears will allow the World Bank Group to reengage with the country and address the development needs of the Syrian people,” the bank said. “After years of conflict, Syria is on a path to recovery and development.”

The bank is now preparing its first project in Syria, which will focus on improving electricity access — a key pillar for revitalising essential services like healthcare, education, and water supply.

Officials said it marks the beginning of expanded support aimed at stabilising Syria and boosting long-term growth.

US to lift sanctions on Syria

The bank’s announcement coincides with a dramatic shift in US policy towards Damascus.

US President Donald Trump announced on Tuesday that Washington would begin lifting sanctions imposed on Syria, including measures under the Caesar Syria Civilian Protection Act.

On Wednesday, Trump met Syria’s President Ahmed al-Sharaa on the sidelines of the GCC summit in Riyadh, marking a historic breakthrough in relations between the countries and the first such meeting between the two nations’ leaders in 25 years.

Secretary of State Marco Rubio confirmed that waivers would be issued, easing restrictions on entities previously penalised for dealings with the now former administration of Bashar al-Assad, which was toppled in December.

“Lifting sanctions on Syria represents a fundamental turning point,” Ibrahim Nafi Qushji, an economist and banking expert, told Al Jazeera. “The Syrian economy will transition from interacting with developing economies to integrating with more developed ones, potentially significantly reshaping trade and investment relations.”

The moves represent a significant moment in Syria’s reintegration into the global financial system after 13 years of civil war and isolation.

In April, a rare meeting was held in Washington involving officials from Syria, the IMF, the World Bank, and Saudi Arabia. A joint statement issued afterwards acknowledged the dire state of Syria’s economy and promised coordinated efforts to support its recovery.

The International Monetary Fund has since named its first mission chief to Syria in more than a decade. Ron van Rooden, previously involved with IMF operations in Ukraine, will lead the Fund’s renewed engagement.

Martin Muehleisen, a former IMF strategy chief, noted the urgency of providing technical assistance to rebuild Syria’s financial institutions. “Those efforts could be funded by donors and grants in-kind,” he told the news agency Reuters, adding that some support could begin within months.

Al-Assad was toppled after a lightning offensive by opposition fighters led by the Hay’et Tahrir al-Sham armed group last December.

Syria’s new government has sought to rebuild the country’s diplomatic ties, including with international financial institutions. It also counts on wealthy Gulf Arab states to play a pivotal role in financing the reconstruction of Syria’s war-ravaged infrastructure and reviving its economy.

The government, led by interim President al-Sharaa, also wants to transition away from the system that gave al-Assad loyalists privileged access to government contracts and kept key industries in the hands of the al-Assad family.