WTO slashes 2025 trade growth forecast, warns of deeper slump

The World Trade Organisation (WTO) sharply cut its forecast for global merchandise trade from solid growth to a decline on Wednesday, saying further US tariffs and spillover effects could lead to the heaviest slump since the height of the COVID pandemic.

The WTO said it expected trade in goods to fall by 0.2% this year, down from its expectation in October of 3.0% expansion. It said its new estimate was based on measures in place at the start of this week.

“I’m very concerned, the contraction in global merchandise trade growth is of big concern,” WTO Director General Ngozi Okonjo-Iweala told reporters in Geneva.

US President Donald Trump imposed extra duties on steel and car imports as well as more sweeping global tariffs before unexpectedly pausing higher duties on a dozen economies. His trade war with China has also intensified with tit-for-tat exchanges pushing levies on each other’s imports beyond 100%.

The WTO said that, if Trump reintroduced the full rates of his broader tariffs that would reduce goods trade growth by 0.6 percentage points, with another 0.8 point cut due to spillover effects beyond US-linked trade.

Taken together, this would lead to a 1.5% decline, the steepest drop since 2020.

“If we have contraction in global merchandise the concern is spill over into broad GDP growth. We’ve seen that the trade concerns can have negative spill overs into financial markets, into other broader areas of the economy,” Okonjo-Iweala added. She also raised alarm about the impact on developing countries.

The head of the WTO said her greatest fear was that the economies of China and the US were decoupling from one another.

The WTO estimates that merchandise trade between them will fall by 81% - a drop that could have reached 91% without recent exemptions for products such as smartphones.

“A decoupling could have far reaching consequences if it were to contribute to a broader fragmentation of the global economy along geopolitical lines to two isolated blocks,” Okonjo-Iweala said.

In this scenario, global GDP could shrink by 7% in the long term, which the director general described as “significant and substantial”.

“The unprecedented nature of the recent trade policy shifts means that predictions should be interpreted with more caution than usual,” said the WTO, which is also forecasting a modest recovery of 2.5% in 2026.

“Forecasting a credible baseline scenario has become virtually impossible,” Hector Torres, a former executive director of the International Monetary Fund, told Reuters.

“The remnants of a deteriorated ‘rules-based’ trading system are giving way to a capricious ‘deals-based’ disorder, where any projections hinge on government’s capacity to strike bilateral deals with the Trump Administration,” Torres said.

Earlier on Wednesday, the U.N. Trade and Development agency said global economic growth could slow to 2.3% as trade tensions and uncertainty drive a recessionary trend.

The Geneva-based WTO said disruption of U.S.-China trade was expected to increase Chinese merchandise exports across all regions outside North America by between 4% and 9%.

Other countries would have opportunities to fill the gap in the United States in sectors such as textiles, clothing and electrical equipment.

Services trade, though not subject to tariffs, would also take a hit, the WTO said, by weakening demand related to goods trade such as transport and logistics. Broader uncertainty could dampen spending on travel and investment-related services.

The WTO said it expected commercial services trade to grow by 4.0% in 2025 and 4.1% in 2026, well below baseline projections of 5.1% and 4.8%.

The expected downturn follows a strong 2024, when the volume of world merchandise trade grew by 2.9% and commercial services trade expanded by 6.8%.

The World Trade organisation says the volume of trade in goods worldwide is likely to decrease by 0.2% this year due to US President Donald Trump’s shifting tariff policies and a standoff with China, but it would take a more severe hit if Trump carries through on his toughest “reciprocal” tariffs.

The decline in trade will be particularly steep in North America even without the stiffest tariffs, the global trade forum said Wednesday, with exports there this year expected to fall by 12.6% and imports by 9.6%.

The WTO based its report on the tariff situation as of Monday. Initially, 2025 and 2026 were expected to have continued expansion of world trade, but Trump’s trade war forced WTO economists to substantially downgrade their forecast, the forum said.

Trade in goods worldwide would slump by 1.5% if Trump follows through on his stiffest tariffs on most nations, due to the uncertainty unsettling businesses.

Trump suspended the toughest set of tariffs for 90 days earlier this month so more than 70 countries have a chance to address US trade concerns. Meanwhile, he is increasing taxes on Chinese imports to 145% and engaging in a lengthy back and forth with Canada and Mexico about tariffs on their goods.

Despite the 90-day pause, “the enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, the most vulnerable economies in particular,” WTO Director-General Ngozi Okonjo-Iweala said in a statement.

Reuters