By Andrea Shalal
WASHINGTON (Reuters) – Spiking trade uncertainty is compounding rising debt and sluggish growth problems facing emerging markets and developing countries, but cutting their own tariffs could provide a big boost, said Indermit Gill, the World Bank’s chief economist.
Gill said global economists were rapidly lowering their growth forecasts for advanced economies and somewhat less so for developing countries, at least for now, in the wake of a tsunami of tariffs announced by U.S. President Donald Trump.
The International Monetary Fund and World Bank spring meetings this week in Washington have been dominated by worries about the economic fallout from century-high U.S. tariffs – and retaliatory ones announced by China, the European Union, Canada and others.
The IMF on Tuesday slashed its economic forecasts for the U.S., China and most countries and warned that more trade strife would further slow growth. It forecast global growth of 2.8% for 2025, half a percentage point lower than its January forecast.
The World Bank won’t issue its own twice-yearly forecast until June, but Gill said a consensus of global economists showed sizeable downgrades in forecasts for growth and trade. Uncertainty indices, which were already running far higher than a decade ago, also spiked after Trump’s April 2 tariff moves.
Compared to earlier shocks, including the 2008-2009 global financial crisis and the COVID-19 pandemic, the current shock is the result of government policy, which meant it could also be reversed, Gill said in an interview with Reuters on Thursday.
He said the current crisis would further depress growth in emerging markets, after steady declines from levels around 6% two decades ago, with global trade now slated to grow by just 1.5% – well below the 8% growth seen in the 2000s.
“So it’s a sudden slowdown on top of a situation that wasn’t particularly good,” he said, noting that portfolio flows to emerging markets and foreign direct investment (FDI) were also declining, much as they did during earlier crises.
“FDI was 5% of GDP in emerging markets during good times. Now it’s actually 1% and so both portfolio flows and FDI flows are down overall,” he said.
NEGOTIATE TRADE DEALS
High debt levels mean that half of some 150 developing countries and emerging markets are either unable to make debt service payments or at risk of getting there, a rate that was double the level seen in 2024, and could grow further if the global economy slowed, Gill said.
“If global growth slows down, trade slows down, more countries and interest rates stay high, then you are going to get many of these countries getting into debt distress, including some that are commodity exporters,” he said.
