Global Growth Takes Hit Amid Rising Policy Uncertainty

According to the latest World Economic Outlook (WEO), global economic growth is projected to expand at a sluggish 3.3 percent both in 2025 and 2026, marking a significant decline from the historical average of 3.7 percent over the past two decades.

The October 2024 WEO forecast remains largely unchanged for 2025, primarily due to an upward revision in the United States that offsets downward revisions in other major economies. However, the overall outlook is clouded by heightened policy uncertainty, which threatens to disrupt the ongoing disinflation process.

Global headline inflation is expected to decline to 4.2 percent in 2025 and 3.5 percent in 2026, albeit with a delay in achieving pre-target levels in emerging market and developing economies. The near-term outlook is characterized by divergent risks, with upside prospects boosting the already robust US economy and other countries facing downside risks.

According to the WEO, medium-term risks to the baseline are tilted to the downside, with policy-generated disruptions posing significant challenges for fiscal sustainability and financial stability. To navigate these risks, policymakers must adopt a cautious approach that balances trade-offs between inflation and real activity, rebuild buffers, and invest in structural reforms and multilateral cooperation.

In order to mitigate these risks and kickstart medium-term growth prospects, stepped-up efforts are necessary. The United States is already a leader in economic reform, but other countries can follow suit by implementing targeted policies and strengthening international rules and cooperation.

The outlook highlights the urgent need for policymakers to make deliberate decisions that balance competing pressures and minimize the impact of elevated uncertainty on global growth. Ultimately, addressing these challenges will require sustained collaboration and pragmatic policy choices.