Trade barriers dampen India’s FY26 growth prospects
India is projected to grow at 6.3% in FY26, as per the report. The forecast has been downgraded by 0.4 percentage point relative to January projections, with exports dampened by weaker activity in key trade partners and rising global trade barriers, the report said.However, in the next two fiscal years, starting in FY26-27, India’s growth is expected to recover to 6.6% a year, on average, partly supported by robust services activity contributing to a pickup in exports, the report stated.
The World Bank’s estimated growth rates for India in FY26 are almost in line with the International Monetary Fund’s (IMF) prediction of 6.2% growth for India. As per, IMF’s projections in May, India is poised to take over Japan by a small margin in 2025 to emerge as the fourth largest economy in the world.
However, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) in the June 6 announcement maintained the growth projection for India’s Gross Domestic Product to 6.5% for the fiscal year 2026.
Global economy’s soft landing no longer in sight
“Only six months ago, a ‘soft landing’ appeared to be in sight: the global economy was stabilising after an extraordinary string of calamities both natural and man-made over the past few years. That moment has passed. The world economy today is once more running into turbulence. Without a swift course correction, the harm to living standards could be deep,” said Indermit Gill, Senior Vice President and Chief Economist of the World Bank Group.
A global recession is not expected. Nevertheless, if forecasts for the next two years materialise, average global growth in the first seven years of the 2020s will be the slowest of any decade since the 1960s, the World Bank said.
The advanced economies are expected to see growth decelerate to 1.2% in 2025, before rising modestly to 1.4% in 2026 and 1.5% by 2027, as per the report. Emerging market and developing economies (EMDEs), on the other hand, are projected to deliver a growth of 3.8% in 2025 & 2026, inching up to 3.9% by 2027.
“Outside of Asia, the developing world is becoming a development-free zone,” Gill said. “It has been advertising itself for more than a decade. Growth in developing economies has ratcheted down for three decades—from 6% annually in the 2000s to 5% in the 2010s—to less than 4% in the 2020s. That tracks the trajectory of growth in global trade, which has fallen from an average of 5% in the 2000s to about 4.5% in the 2010s — to less than 3 percent in the 2020s. Investment growth has also slowed, but debt has climbed to record levels,” he added.
Here is a look at growth forecasts for global economies:
| Countries | 2026 | 2027 |
| US | 1.4% | 1.6% |
| India | 6.3% | 6.5% |
| Japan | 0.7% | 0.8% |
| Brazil | 2.4% | 2.2% |
| South Africa | 0.7% | 1.1% |
| China | 4.5% | 4.0% |
| Russia | 1.4% | 1.2% |
Risks to global growth
Risks to the global outlook remain tilted decidedly to the downside, the World Bank said. “High and persistent policy uncertainty—particularly related to trade—could lead to greater-than-expected weakening in investment, trade, and confidence. Renewed increases in trade restrictions could push inflation higher in key economies, magnifying real income losses and limiting the scope for major central banks to support flagging growth by lowering policy rates,” it added.On the global growth front, the World Bank projections are grimmer than those of the IMF. In April, the IMF slashed its global growth forecasts to 2.8% in 2025 and 3% in 2026.
Also read: IMF slashes global growth forecast over tariff turbulence, lowers India’s FY26 outlook to 6.2%
To quantify downside risks concerning trade policy, the report modelled a scenario in which US weighted average tariffs increase by about 10 percentage points relative to the baseline, with proportional retaliation from trading partners. This sudden escalation in trade, accompanied by a widespread collapse in confidence, surging uncertainty, and turmoil in financial markets would shave off global growth, by 0.5% and 0.4% in 2025 and 2026, relative to the baseline.
In contrast, global growth could rebound faster than expected if major economies are able to mitigate trade tensions — which would reduce overall policy uncertainty and financial volatility. The analysis finds that if today’s trade disputes were resolved with agreements that halve tariffs relative to their levels in late May, global growth would be 0.2% stronger on average over the course of 2025 and 2026, according to the report.
“Emerging-market and developing economies reaped the rewards of trade integration but now find themselves on the frontlines of a global trade conflict,” said M. Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group. “The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm. With trade barriers rising and uncertainty mounting, renewed global dialogue and cooperation can chart a more stable and prosperous path forward.”
Global trade
Global trade growth in goods and services is projected to slow sharply in 2025, to 1.8%, from 3.4% in 2024. The forecast has been revised down by 1.3 percentage points since January, reflecting changes in trade policies in key economies and higher trade policy uncertainty.
Increased tariffs are expected to weigh on global trade over the forecast horizon. In tandem with the projected pickup in global growth, trade growth is nonetheless forecast to firm from a feeble pace this year, reaching 2.4% in 2026 and 2.7% in 2027—still well below its pre-pandemic average of 4.6%.
The forecast for global trade growth masks significant heterogeneity. Countries with greater export exposure to EMDE markets are projected to recover more rapidly than those more reliant on advanced economies, though elevated policy uncertainty and weakening demand could weigh on the recovery more broadly.
Inflation
The outlook for global inflation has become more uncertain since last year due to a combination of shocks. Most notably, substantial tariff hikes are set to exert upward pressure on consumer inflation in key economies by raising prices for imported consumer goods and inputs into production and redirecting demand toward domestic production that is relatively inelastic in the short run, the report said.
As per the World Bank, on a GDP-weighted basis, global inflation is projected to average 2.9% in both 2025 and 2026, before easing to 2.5% in 2027 —about in line with the average inflation target. However, the report added that there is significant heterogeneity across countries, with inflation projections revised slightly lower in EMDEs in 2025 due to the impact of weaker demand for traded goods, while being revised significantly higher in advanced economies, primarily the United States.
Policy priorities
The report argues that in the face of rising trade barriers, developing economies should seek to liberalise more broadly by pursuing strategic trade and investment partnerships with other economies and diversifying trade—including through regional agreements. Given limited government resources and rising development needs, policymakers should focus on mobilising domestic revenues, prioritising fiscal spending for the most vulnerable households, and strengthening fiscal frameworks.
Finally, to accelerate economic growth, countries will need to improve business climates and promote productive employment by equipping workers with the necessary skills and creating the conditions for labor markets to efficiently match workers and firms, the report said. Global collaboration will be crucial in supporting the most vulnerable developing economies, including through multilateral interventions, concessional financing, and, for countries embroiled in active conflicts, emergency relief and support.
