The World Bank has painted a bleak picture of the U.S. economy and has estimated that the global economy will see the slowest decade for global growth since the 1960s, according to a forecast released on Tuesday.
The forecast says that just six months ago, a “soft landing” appeared to be in sight, but “that moment has passed” and that international discord about trade in particular has “upended many of the policy certainties.”
“Before the COVID-19 pandemic, the U.S. economy was in a solid place. Unemployment hovered near historic lows around 3.5%, the economy expanded at 2.3%, and per capita GDP was $63,360,” says Anthony Smith, senior economist at Realtor.com.
“The pandemic was a major disruption that sent unemployment skyrocketing and growth plummeting, but the economy was able to quickly rebound, regaining most of its momentum by 2022 as unemployment dropped back to historic lows.
“This report shows that the U.S. is not alone. The catch-up has been nearly complete for high-income economies, but low-income economies have moved in reverse.”
The World Bank gives a “grim” outlook on the building problems the world is facing and suggests the following: rebuild trade relations, restore fiscal order, and accelerate job creation.
Without mentioning President Donald Trump by name, the report on the one hand appears to agree with his take on how other nations impose higher tariffs on the U.S.
“Most developing economies today tend to have far higher tariffs than high-income economies. If their goal is to accelerate growth, their best course of action will be to lower tariffs with respect to all trading partners,” says the report.
“This favorable access to the U.S. market could not be sustained indefinitely,” said Indermit Gill, the World Bank’s chief economist, according to the Washington Post. Gill added that the outdated trade rules “should be updated.”
The report points out that the increase in tariffs and the upheaval that followed are contributing to a growth slowdown. It suggests policy action to improve the “subdued global growth prospects.”
Trump imposed sweeping tariffs on April 9, a week after declaring “Liberation Day.” But on April 29, he signed an executive order easing the 25% tariffs on automobiles and parts. Then, days later, on May 3, a new round of 25% tariffs took effect on a range of auto parts. Most recently, on June 4, Trump’s 50% tariffs on steel and aluminum imports went into effect. The higher tariffs have put pressure on U.S. builders who have admitted they’re scaling back on projects.
“One of the historical uses of tariffs has been for protection purposes,” explains Smith. “Some developing economies were able to place them in specific segments to help build out their local industries without international competition. However, persistently high tariffs can hinder overall growth by increasing consumer prices and reducing competition and efficiency.”
When it comes to the gross domestic product—a measure of goods and services made within a country during a specific period—World Bank economists said it will grow at an annual rate of 1.4%, that’s 0.9 percentage points lower than its January 2025 projections.
Fix the fiscal order
The World Bank report stated: “In the era of easy money that preceded the COVID-19 pandemic, governments opted to take too many risks for far too long.” It points out fiscal deficits and interest costs accounting for about a third of that.
“The lower interest rates before COVID-19 encouraged investors to take more risks due to the lower cost of capital,” says Smith. “Government and households were also able to take on more debt. The higher rates now create a more cautious environment where a greater return is needed to induce private investment. These higher interest rates should eventually help encourage private savings.”
Smith points out that a significant shift will come from big-ticket purchases, such as a car or home.
“Higher interest rates create more difficulties for those purchases and reduce demand. Governments in developing countries are now facing higher interest rates on their debt. This consumes a larger share of their budget and reduces public spending and investment that would have boosted economic growth,” says Smith.
Economic growth is expected to slow to 2.3% in 2025—with deceleration in most economies relative to last year, according to the World Bank. This marks the slowest rate of global growth since 2008, aside from outright global recessions.
What will this mean for potential buyers looking to purchase a property? Smith says various factors such as trade barriers, higher interest rates (mortgage rates are hovering near 7%), and uncertainty around policy will be challenging, but not impossible.
“Slower growth can dampen consumer confidence and job stability,” Smith says. “Sellers also become repeat buyers and are looking to make a purchase themselves. These would-be sellers face the same headwinds as other buyers when looking for their next home.”
