Uncertainty over U.S. tariff policy and other factors is expected to persist in the new year, leading to a forecast that the global economic growth rate will edge down slightly from last year.
The World Bank, in its Global Economic Prospects report released on the 13th local time, put this year's global growth at 2.6%. That is 0.1 percentage point lower than last year's estimated growth of 2.7%.
The World Bank assessed that, ahead of U.S. tariff imposition, last year's trade volumes temporarily increased and the rapid reorganization of global supply chains helped the world economy show stronger-than-expected resilience. However, it projected that the effect will weaken this year as trade volumes and domestic demand decline. Even so, it added that an improvement in global financial conditions and expanded fiscal expenditure in some large countries could partially cushion the slowdown in growth.
The latest forecast of 2.6% is 0.2 percentage point higher than the 2.4% presented in the World Bank's report in June last year. The bank said roughly two-thirds of the upward revision stems from stronger-than-expected U.S. growth momentum.
The U.S. growth rate is expected to edge up from 2.1% last year to 2.2% this year. While tariff burdens could affect consumption and investment, extended tax benefits and the end of the federal government shutdown late last year are seen adding to this year's growth.
By contrast, the euro area is expected to slow from 1.4% last year to 0.9% this year. Since Russia's invasion of Ukraine, higher energy prices have weakened export price competitiveness, leading to slower exports, which was cited as the main reason.
The growth forecast for East Asia and the Pacific is 4.4% this year, down from 4.8% last year. The World Bank pointed to China's slowdown as the drag. China's growth is projected to ease from 4.9% last year to 4.4% this year, with weaker consumer confidence, a sluggish property market, and slower employment and manufacturing cited as reasons. Excluding China, East Asia and the Pacific are expected to grow 4.6% last year and 4.5% this year. The report did not include Korea's growth forecast. Developing economies are expected to slow from 4.2% last year to 4.0% this year.
The World Bank also projected that, although major countries have reached bilateral trade agreements with the United States, policy uncertainty remains elevated and relative changes in tariff rates could spur a reorganization of regional supply chains.
The World Bank warned that, in the short term, downside risks to the global economy are greater, and that the slowdown could worsen if risks such as escalating trade conflicts and stronger trade barriers, falling asset prices and worsening financial market conditions, fiscal concerns, and higher-than-expected inflation materialize.