Indermit Gill, chief economist at the World Bank, warned that rising trade uncertainty is exacerbating the mounting debt and slow growth problems facing emerging markets and developing countries, noting that lowering tariffs could provide a significant boost to their economies.
Speaking on the sidelines of the IMF/World Bank Spring Meetings in Washington this week, Gilles explained that emerging markets will experience a further slowdown, especially after a gradual decline from growth rates of approximately 61% 20 years ago, while global trade growth is heading towards a rate of no more than 1.51% 20 years ago, compared to 81% 20 years ago.
He emphasized that this is a sudden slowdown on top of an already precarious situation, noting that portfolio flows and foreign direct investment to emerging markets are declining in a manner similar to what happened in previous crises.
Gill added that foreign direct investment, which represented 51% of GDP in good times, has now fallen to 11%, noting that this heavy burden on national budgets is leading to reduced spending on education, healthcare, and other essential development programs.
He noted that interest rates are expected to remain high amid expectations of rising inflation, meaning the cost of debt could increase further when existing loans are renewed.
The World Bank's chief economist explained that global economic forecasts are undergoing rapid downward revisions, particularly in developed countries, following a wave of tariffs announced by US President Donald Trump.
Concerns about the repercussions of these tariffs—the highest in a century—dominated the meetings, especially in light of retaliatory responses from China, the European Union, Canada, and other countries.
The International Monetary Fund on Tuesday lowered its economic forecasts for the United States, China, and most of the world, warning that continued trade tensions would lead to a further slowdown in growth.
The Fund expects global growth in 2025 to reach 2.81%, half a percentage point lower than its previous forecast in January.
The World Bank will not release its semi-annual forecasts until next June, but Gill noted that there is a consensus among global economists that there will be significant downgrades to forecasts for growth and trade.
He added that uncertainty indicators, which were already high compared to a decade ago, saw an additional jump following Trump's recent decisions to impose tariffs on April 2.
