World Economy Slows as Forecasts Signal a Slowdown

Source Credit : Portfolio Prints

The Big Picture

In a striking shift, major economic institutions are projecting that global growth will decelerate markedly over the next few years. According to the Organisation for Economic Co‑operation and Development (OECD), global growth is expected to drift from about 3.3% in 2024 to 2.9% in 2025 and 2026. Meanwhile, the World Bank projects growth of just 2.3% in 2025, with only a tepid recovery thereafter.

Why It's Happening

Several interlocking forces are dragging growth lower:

• Trade and tariff pressures: Escalating tariff measures and trade policy uncertainty are weighing on global commerce and investment.


• Weaker domestic demand in major economies: For example, China’s growth in the third quarter decelerated to 4.8%, with retail sales showing pronounced weakness.


• Elevated policy & macro uncertainty: Firms and consumers are less willing to invest or spend when the future looks unclear, dampening momentum.


• Tighter financial conditions: With inflation still elevated in many places, central banks’ policy space is constrained, which limits upside potential.


• Structural drag and emerging risks: Factors like high debt, aging populations, shifting global supply chains and technological transitions add to the drag.

Regional Snapshots

• United States: Growth is forecast to slow to about 1.6% in 2025 from ~2.8% in 2024. The combination of slower growth and sticky inflation raises concerns of stagnation-plus-inflation (“stagflation”).


• China & East Asia: China’s major slowdown in domestic demand and property weakness is dragging growth. Emerging Asia is still expected to grow faster than the average, but it too is facing headwinds.


• Europe & developing economies: Growth is below historic averages in many advanced economies; emerging markets face a tougher external environment and higher borrowing costs.

What This Means

• For businesses: Slowing global demand means companies may face weaker sales growth, tighter margins, and more caution in investment.


• For labour & households: Employment growth may slow; wage gains may moderate; the cost of living may remain high if inflation remains sticky.


• For policy-makers: The challenge is balancing inflation control with supporting growth—tightening too much risks a sharper downturn; loosening too early may fuel inflation.


• For investors: Growth-oriented assets may struggle; diversification and risk management become more important in a slower-growth world.

Risks and Upsides

Downside risks

• A further escalation of trade wars could reduce global output by as much as 0.3 percentage points in a given year.


• A slowdown in a major economy (e.g., China or the U.S.) could ripple through global trade and finance.


• Financial market shocks, technology busts (e.g., disappointment in AI investment) or major geopolitical events.

Potential positives

• Emerging and developing economies may outperform advanced peers if they manage policy well and capitalize on demographic/technology shifts.


• A détente in trade tensions or successful reform efforts could provide upside surprise.


• Technological innovation, infrastructure spending or green transition could create new growth engines.

Implications for India (and similar economies)

For countries like India, which still have relatively high growth potential, the external slowdown creates both risk and opportunity. On one hand, weaker global demand and trade frictions pose challenges; on the other, domestic reform, infrastructure investment and favourable demographics could make India a relative outperformer.

Conclusion

We are entering into a phase of ”slower growth, greater uncertainty, and more moderate returns”. The numbers don’t suggest an imminent global recession (at least not yet), but they do point to a prolonged period of sub-par growth compared with the post-pandemic boom. Growth of ~2–3% for the global economy may become the “new normal” unless structural reforms and policy coordination lift the trajectory.