Protectionism and policy volatility are emerging as the biggest threats to the world’s fragile economic recovery, according to the World Bank’s latest Global Economic Prospects report. The institution warned that global trade — once a key driver of growth — is showing its sharpest deceleration in more than a decade, raising concerns that 2025 could mark another year of uneven expansion and subdued investment.
The World Bank projects global growth to ease to around 2.8% in 2025, down from 3.1% in 2024, as rising tariffs, geopolitical fragmentation, and weakened business confidence take hold. The slowdown is particularly pronounced in advanced economies, where tighter financial conditions and sluggish productivity are dampening trade flows. Meanwhile, developing countries are struggling with higher borrowing costs, inflation persistence, and limited access to global capital markets.
“Trade is no longer functioning as the engine of global growth it once was,” the World Bank said, highlighting that trade volumes have expanded at less than half the pace of global GDP for three consecutive years. It attributed this trend to increasing protectionist measures — including export controls, industrial subsidies, and tariff barriers — which are fragmenting global supply chains and discouraging cross-border investment.
The report also noted that policy volatility has made it harder for businesses to plan long-term. From shifting climate policies to unpredictable industrial incentives, governments are prioritizing domestic security and strategic industries over open markets. While these measures aim to strengthen resilience, the World Bank warned they could have the opposite effect, creating inefficiencies and driving up production costs globally.
Emerging markets, once the beneficiaries of globalization, are among the hardest hit. Weaker demand from the United States, Europe, and China has curbed exports from Latin America, Southeast Asia, and sub-Saharan Africa. In many cases, currency depreciation and fiscal tightening are compounding the strain. “For developing economies, the challenge is not just slower trade — it’s diminished opportunity,” the report stated.
The World Bank urged policymakers to resist inward-looking economic policies and focus instead on rebuilding trust in multilateral institutions. It emphasized the need for coordinated investments in green infrastructure, digital trade, and transparent supply chains to restore global momentum. “The lesson of recent years is clear,” the report concluded. “Isolation breeds inefficiency. Cooperation remains the most powerful tool for shared prosperity.”
As 2025 unfolds, economists warn that the world is entering a new era of cautious globalization — one defined less by open borders and more by strategic alliances. Whether this evolution strengthens or fractures the global economy will depend on how governments balance national interest with collective resilience in the months ahead.
