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World—Trade has proven resilient, but a marked slowdown is expected
Recent tariffs and retaliatory measures from major economies have raised uncertainty and accelerated geopolitical fragmentation. While agile firms and sophisticated supply chains have shown resilience to multiple supply shocks in recent years, the World Bank forecasts trade growth to decelerate from 3.4% in 2024 to 1.8% in 2025, compared to an annual average 4.9% over 2000-19. Export front-loading has likely peaked and will exacerbate the global economic and trade slowdown in H2 2025. Indeed, manufacturing purchasing managers’ indexes show new export orders contracting in over two-thirds of reported countries.
Country characteristics and market linkages will drive divergent outcomes across regions. Economies dependent on goods trade and focused on the US (Chart) will be worst affected. Consumption-focused economies and those with diversified exports will be more resilient. For instance, the World Bank forecasts India and Indonesia to expand 6.3% and 4.7% respectively this year, little changed from 2024. Generally, increasingly flexible exchange rates, independent central banks and low foreign-currency debt have made emerging markets more resilient to shocks. Some oil-exporting economies may even see exports rise as production cuts ease, while precious metals exporters may benefit from safe-haven demand.
Much depends on where US bilateral and sectoral tariffs settle after 1 August, whether relative tariff rates cause structural change in the global economy, and how firms and consumers change pricing and buying behaviour. Downside risks dominate. Advanced economies could revert to higher tariffs previously announced or expand retaliatory measures, further delaying investment and prompting trade restrictions from third markets to shield domestic industries. However, if forecasts of modest non-US inflation prove correct, many economies could support demand by lowering interest rates. And while high debt loads will constrain fiscal stimulus, longer term reforms, including efforts to boost intra-regional trade, could also provide a buffer.
