The World Bank has reduced its global growth forecast for 2025 by 0.4 percentage points. This revision includes a cut in the US growth forecast by 0.9 percentage points to 1.4%, with another cut for 2026 by 0.4 percentage points.

Growth in advanced economies is now projected at 1.2%, down from 1.7%. The Eurozone is expected to grow at 0.7%, revised from 1.0%. Emerging and developing economies are forecasted to grow at 3.8%, compared to the previous 4.1% estimate.

Chinas Stability and Global Impacts

China’s growth forecast remains steady at 4.5%, with the World Bank noting fiscal flexibility in Beijing. The report suggests that the current decade could experience the slowest growth in over 60 years.

Additionally, the World Bank indicates that 70% of economies have lower forecasts. A potential 10% US tariff could further impede growth in the latter half of the year.

The updated projections from the World Bank suggest a more restrained pace of expansion globally, with momentum continuing to slow across most advanced economies. The lowered expectations for the United States, in particular, carry implications that extend beyond its borders. With a nearly full percentage point trimmed off next year’s figure and a further downward revision the year after, this is not just a sign of fading domestic demand but a ripple likely to touch every market tethered to American consumption and investment.

By dialling back estimates for the Eurozone as well, there’s added pressure on regions already grappling with sluggish industrial output, demographic pressures and complex monetary policy choices. The new 0.7% figure paints a picture of a bloc finding it difficult to shake off stagnation, underscoring the limited capacity for organic growth in the near term. Meanwhile, although projections for emerging and developing economies now stand a few notches lower, they’re still expected to grow faster than their richer counterparts, providing modest opportunities, despite worsening capital flow conditions.

Global Synchronisation Shift

Beijing’s stability at 4.5%, paired with its capacity to respond with fiscal tools, offers a point of consistency, though it shouldn’t be mistaken for a signal of strength on its own. It’s more about relative calm in a setting where storm clouds are appearing in various directions. Importantly, we’ve become more aware that while China can maintain this pace through policy levers, external demand for its exports will remain a drag.

The broader statement — that this could be the weakest pace of global expansion in six decades — is not to be taken lightly. When nearly three-quarters of economies are now operating under lower growth prospects, this sets the stage for tighter funding conditions, lower revenue expectations, and a shifting cost of risk throughout the year. That’s also before you factor in potential shocks from policy shifts, such as the possibility of new tariffs from the United States. A 10% blanket increase, as highlighted, would likely suppress global trade even further and challenge inflation trajectories, particularly in small open economies and trade-reliant nations.

From our vantage point, as disinflation trends in developed markets continue but fail to materialise uniformly, we expect monetary policy divergence to continue playing a key role in asset pricing. Bond markets may have absorbed much of this message already, but rate cuts are looking more staggered than once predicted. This steadier glide path keeps implied volatility elevated across forward rate agreements and swap curves.

In the background, compression in the growth premium across futures is becoming harder to ignore. If near-term growth underperforms, carry trades that rely on clear central bank cues may find less foundation. Hints of slower growth without a meaningful correction in inflation expectations push us to reconsider baseline models tied to breakeven paths and gamma exposure across longer tenors.

While headline figures dominate the headlines, it’s the underlying shift in global synchronisation that warrants more attention from our side. Divergence, not convergence, is the dominant pattern. We’re seeing it not just in policy, but in activity, price dynamics, and cross-border capital allocation preferences. That creates a different risk-reward profile compared to the last few easing cycles, especially in terms of duration performance and convexity hedging.

Take cues from the revised data: implied ranges are narrowing, tails look fatter, terminal rate expectations are softening, but not fast enough to escape policy uncertainty. We suggest watching for dislocations between realised and implied vol, as the slower trajectory in output and consumption might compress realised vols over the short run, without eliminating tail risks linked to policy responses or shocks.

With most developed markets projected to struggle to reach even modest expansion, intra-curve positioning becomes more valuable than outright directionality. And with export-driven economies facing weaker external demand, there is less justification for spread compression across regions tied to industrial production.

So, what now? Keep your eyes less on the aggregate headline numbers and more on how policymakers react to this slower tempo — that’s where volatility and mispricing will surface. Rate differentials are likely to be stickier than previously assumed, meaning pairs trading and relative value plays could deliver better-than-expected outcomes, especially when calibrated to delayed reaction functions.

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