The slump in economy
Trade and commerce across the globe is witnessing a severe slump with major economies facing the heat. Economists and experts in the field have been raising these alarms since almost two years now, but the situation does not seem to improve.
As of now the global economy is growing steadily in the face of war, protectionist trade policies and high interest rates. However, it just isn’t growing fast enough to bring relief to the world’s poorest.
The world bank expects the world economy to expand 2.7 per cent in 2025 and again in 2026. It’s a remarkably consistent performance – matching 2023 and 2024 – but also a lackluster one. Growth is running 0.4 percentage points below the 2010-2019 average. The slump reflects lingering damage from the adverse shocks of recent years’ including COVID-19 and Russia’s invasion of Ukraine.
The bank’s latest Global Economics Prospects report, which comes out in January and June, did offer some good news. Global inflation, which was running over 8 per cent two years ago, is expected to slow to an average of 2.7 per cent in 2025 and 2026, close to many central bank targets.
The World Bank, comprising 189 member nations, seeks to reduce poverty and boost living standards by providing grants and low-rate loans to poor economies.
For low- and middle-income countries – so-called developing economies – growth is expected to come in at 4.1 per cent this year and slow slightly to 4 per cent in 2026.
The World Bank says that plodding pace of growth is “insufficient” to ease global poverty.
Ironically, growth has been decelerating for years in the developing world – from a robust average of 5.9 per cent a year in the 2000s to 5.1 per cent in the 2010s to just 3.5 per cent in the 2020s. Excluding China and India, those countries are lagging behind the world’s wealthy countries in per-capita economic growth.
Their economies have been hobbled by sluggish investment, high levels of debt, the increasing costs of climate change and growing protectionism that hurts their exports. None of those things seems likely to go away anytime soon.
The world’s poorest countries – with per-person annual incomes below USD 1,145 – grew just 3.6 per cent in 2024 on account of escalating conflict and violence’ in places like Gaza and Sudan.
No doubt US growth has been boosted by strong consumer spending, an influx of immigrants who eased labour shortages and improvements in productivity.
Europe, by contrast, is expanding at an agonizingly slow pace. The World Bank downgraded its GDP growth forecast for the 20 countries that share the euro currency to 1 per cent this year from the 1.4 per cent it had projected in June.
Interestingly, the Chinese economy, the world’s second biggest, is expected to decelerate – from 4.9 per cent growth last year to 4.5 per cent in 2025 and 4 per cent in 2026.
China’s real estate market has crashed, demoralising consumers and causing them to rein in their spending. But Chinese exports and investment in factories and infrastructure have been sturdy.
Meanwhile, India, which has supplanted China as the world’s fastest-growing major economy, is expected to see a 6.7 per cent expansion both this year and next. In rural areas, a recovery in farm production has boosted consumer spending – though inflation and slow lending growth have discouraged shoppers in cities.
The World Bank’s forecasts assume no major shifts in trade or budget policies.
But in the United States, President Donald Trump is promising big things – slashing taxes, slapping hefty tariffs on foreign goods, deporting millions of immigrants who are working in the country illegally.
All these policies could drive up US inflation and disrupt global trade. The bank said that the outlook for US economic policy is unclear, with resulting impacts on US and global growth and inflation clouded by uncertainty.
Notably, the world economy is heading towards significant transformations driven by technological advancements, demographic shifts and the green transition. Any major revenue shapeup needs to be worked out within this framework so that the economy too will witness a bloom in the coming few years.
