Headwinds Hamper Global Growth, Undermines Economies
THE TIMES KUWAIT REPORT
Two back-to-back reports, one by the United Nations and the other by the World Bank, stress that heightened trade tensions and policy uncertainty have significantly weakened the global economic outlook for 2025. The reports note that the world economy is facing substantial headwinds and is currently at a precarious moment that could tip-over and severely undermine economies and livelihoods of people worldwide.
The mid-year update to the ‘World Economic Situation and Prospects’ (WESP) report, compiled by the UN Department of Economic and Social Affairs, notes that global growth is now forecast to slow to 2.4 percent in 2025, down from 2.9 percent in 2024, and 0.4 percentage points below the January forecast. The downward revision reflects the current geopolitical and economic turmoil that precipitates strains on global supply chains, raises production costs, delays critical investment decisions, and increases financial market volatility.
The second report, the ‘Global Economic Prospects’ (GEP) published by the World Bank points out that ongoing political and economic upheavals are expected to drive economic growth to its slowest pace since 2008, excluding periods of outright global recessions. Global growth is now projected to slow to 2.3 percent in 2025, nearly half a percentage point lower than the rate predicted at the start of the year, prompting the Bank to cut its forecast for 70 percent of global economies.
While the 2025 growth forecasts affect both developed and developing nations, the Bank noted that growth outlook has deteriorated most for countries reliant on manufacturing, particularly those with strong trade ties to the United States and affected by recent tariff hikes. The report observed that the effective US tariff rate in mid-May stood at about 14 percent, up from 2.5 percent in early 2025, even after factoring in the temporary US-China agreement to ease tariffs.
Besides tariffs, weakening global trade growth, persistent cost-of-living pressures, and sluggish international investment flows are compounding the slowdown and adding to policy challenges for governments. In particular, many trade-reliant developing countries face mounting impediments from reduced exports, lower commodity prices, tighter financial conditions, and elevated debt burdens that disproportionately burden low-income households and vulnerable populations.
In the MIddle East and North Africa (MENA) region, growth is projected to fare relatively better, gradually strengthening over the 2025-27 period. The World Bank estimates the region to grow 2.7 percent in 2025 and average 3.9 percent in 2026-27, mainly due to an expansion of oil activity among oil exporters in the region, which will more than offset the adverse effects of weakening global demand and lower oil prices.
Growth in oil importers is also expected to rise, reflecting a possible stabilization of armed conflicts in the region and waning inflationary pressures. Despite firming economic activity, growth forecasts for MENA this year and next have also been downgraded from the Bank’s January projections amid a rise in trade barriers. However, both the reports published in early June do not account for the outbreak of hostilities in mid-June between Israel and Iran.
In Kuwait, the latest economic analysis by the country’s premier private lender, National Bank of Kuwait (NBK), indicated that regional hostilities have not dented prospects for economic growth in Kuwait, which is projected to turn positive in 2025-26. After two consecutive years of decline driven by a sluggish oil-sector, the country’s GDP is expected to rebound and post growth of nearly 2 percent this fiscal year. This upturn reflects both oil GDP growth from higher oil prices and production, as well as improving non-oil sector performance.
NBK pointed out that although the Israel-Iran conflict has sharply increased regional uncertainty, the turmoil has also fueled a surge in oil prices. The price of Kuwait Export Crude jumped 6 percent overnight to $73 per barrel and topped $77.4 for a barrel on 21 June, over continued fears of disruption to Gulf oil supplies, either directly from the conflict, or from a closure of the Strait of Hormuz—a vulnerable bottleneck in export of hydrocarbons from Kuwait and other neighboring states.
Surge in oil prices comes as a welcome respite for oil exporters pummeled by low oil prices in recent months due to a fall in global demand and supply side concerns. Oil prices fell to four-year low of $60 per barrel in April, following President Trump’s announcement of overarching tariff increases, and the decision by the Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC allies, now referred to as OPEC+, to ease crude oil production cuts, and gradually increase exports over a 18-month period starting from April 2025.
Higher oil prices and production, along with an expected 2.5 percent growth in non-oil GDP, has lowered the probability of the fiscal deficit in Kuwait rising over NBK’s earlier forecast of 8 percent of GDP this fiscal year. With inflation at its lowest level since 2020, the reduced deficit, the government’s ongoing fiscal consolidation program, its focus on implementing key development projects, and the slew of fiscal and economic reforms, bodes well for Kuwait’s near-term economy.
However, downside risks to the economy could arise from a protracted regional conflict that adversely affects economic activity and confidence. Industry analysts warn that oil prices could hit record-highs if the conflict broadens and Iran makes good on its threat to shut down the Hormuz Strait. Oil transportation through the Straits accounts for 20 to 30 percent of the world’s oil supplies, and economists fear that any sustained disruption to energy supplies through Hormuz could very well plunge the global economy into a recession.
While the potentiality of a recession has not been factored in the reports published by the World Bank and UN, a prolonged conflict in the region could derail current economic projections.
The GEP report already emphasizes that the prevailing economic turmoil affects poorest countries the most. A protracted conflict could only exacerbate the vulnerabilities of developing nations that can least afford it.
The report notes that by 2027, while the per capita GDP of high-income economies will be roughly where it had been expected to be before the COVID-19 pandemic, developing economies would be worse off, with per capita GDP levels 6 percent lower. During the 2000 to 2027 period, global GDP growth is expected to average just 2.5 percent—the slowest pace of any decade since the 1960s.
The UN and World Bank reports concur that global cooperation is vital to revive growth, restore a more stable and transparent global trade environment, and scale-up support for vulnerable countries through multilateral interventions, and concessional financing, as well as through emergency relief and support for countries embroiled in active conflicts.
The reports also recommend that in the face of rising trade barriers, developing economies should pursue strategic partnerships with other economies and diversify trade. Additionally, policymakers should focus on mobilizing domestic revenues, targeting fiscal spending to the most vulnerable, and strengthening fiscal frameworks. Developing countries will also need to improve their business climates and promote productive employment by enhancing human resource development and labor markets.
In his foreword to the GEP, the World Bank’s Senior Vice President and Chief Economist, Indermit Gill noted, “The global economy today is at an inflection point. The forces that once drove economic convergence and lifted billions out of poverty are now in retreat.
But this moment offers a chance to reset the agenda—with renewed global cooperation, restored fiscal responsibility, and a relentless focus on creating jobs. With decisive action, governments across the world can still regain the momentum of poverty reduction—and deliver rising living standards for the next generation.”
