piking 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 United States President Donald Trump.
The International Monetary Fund (IMF) and World Bank spring meetings this week in Washington have been dominated by worries about the economic fallout from century-high US tariffs, and retaliatory ones announced by China, the European Union, Canada and others.
The IMF on Tuesday slashed its economic forecasts for the US, China and most countries and warned that more trade strife would further slow growth. It forecast global growth of 2.8 percent 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 percent two decades ago, with global trade now slated to grow by just 1.5 percent – well below the 8 percent 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 percent of GDP in emerging markets during good times. Now it’s actually 1 percent and so both portfolio flows and FDI flows are down overall,” he said.
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.
Net interest payments as a share of gross domestic product (GDP), a measure of how much countries spend to service their debts, now stand at 12 percent for emerging markets, compared to 7 percent in 2014, returning to levels last seen in the 1990s. The rates are even higher for poor countries, where debt servicing costs eat up 20 percent of GDP now, compared to 10 percent a decade ago, he said.
That means countries are spending less on education, health care and other programs that could boost development, he said.
Interest rates are also slated to stay high, given rising inflation expectations, which means countries’ debt could rise further if they needed to roll over existing debt, Gill said.
He said his advice to developing countries was to quickly and urgently negotiate agreements with the US to lower their own tariff rates and avert high US tariffs, and to extend lower tariff rates to other countries.
Doing so now made sense, with US pressure potentially easing domestic resistance. World Bank modeling showed that such moves could boost growth substantially, Gill said.
