The Situation Room - June 11th

Good morning everyone,

I’m Daniel, and welcome to The Situation Room! We cover the most high impact geopolitical developments every Wednesday!

Today’s topics:

• World Bank Slashes Global Growth Forecast

• Analysis: IDF Faces New Threats In ‘Operation Al-Aqsa Flood’

• Mexican Drug Cartels Now Add Former Colombian Soldiers To Their Ranks

World Bank Slashes Global Growth Forecast

_{By: Atlas}

The World Bank’s June update to its twice-yearly Global Economic Prospects report slices expected world output growth for 2025 to 2.3 percent, down 0.4 points from the January projection and far below the 2.8 percent pace recorded in 2024. Chief economist Indermit Gill said trade friction, elevated inflation, and “record-high policy uncertainty” now threaten to make the 2020s the slowest decade of expansion since the 1960s. The development lender trimmed forecasts for about 70 percent of the 189 economies it tracks, including every advanced country and all six major emerging-market regions.

Tariffs at the Center of the Downturn

The report cites the sharp escalation of U.S. tariffs since President Donald Trump took office in January. A 10 percent across-the-board levy imposed in April lifted America’s average applied rate from under 3 percent to the mid-teens, its highest in almost a century. Although the White House paused additional increases for 90 days to allow negotiations, the bank warns that if the July 9 deadline passes without a deal and duties rise another 10 percentage points—coupled with proportional retaliation—global growth could dive to 1.8 percent this year and 2.0 percent in 2026. Such a scenario would be accompanied by “trade seizing up in the second half of the year, a widespread collapse in confidence, and financial-market turmoil.”

Gill told reporters the tariff hikes have already raised effective import costs worldwide, dented new export orders from China to Germany, and convinced firms to delay capital spending. “Uncertainty acts like fog on a runway—it slows investment and clouds the outlook,” he said.

Advanced Economies Lead the Downgrade

Among rich countries the United States took the largest hit: the bank now sees U.S. GDP slowing to 1.4 percent in 2025, half of last year’s 2.8 percent pace and 0.9 points below the January view. Higher import prices, retaliatory duties, and rising bond yields are expected to weigh on household spending and business investment, the report says. Growth in the euro area is cut to 0.7 percent, down 0.3 points, while Japan is lowered to the same 0.7 percent rate, 0.5 points less than six months ago.

The bank stopped short of predicting recession in the G-7, estimating the odds of an outright global contraction at “less than 10 percent,” but it notes that this year’s growth outside recessions would still be the weakest since the 2008 crisis.

Emerging Markets: Slower but Uneven

Emerging and developing economies are now projected to grow 3.8 percent in 2025, down from 4.1 percent in January. China’s outlook remains unchanged at 4.5 percent—the bank believes Beijing has fiscal room to cushion weaker exports—while India stays the world’s fastest major economy at 6.3 percent, off 0.4 points. Commodity exporters are hit hardest: Mexico’s forecast collapses to 0.2 percent, down 1.3 points, reflecting its tight trade linkages with the United States; South Africa and Brazil also see markdowns tied to lower metals and soy prices.

The report underscores the social cost: by 2027, per-capita GDP in developing economies (excluding China) is set to remain 6 percent below pre-pandemic trends, implying another decade of lost progress against poverty. Gill called that outcome “a nasty combination of lower commodity prices and more volatile markets” for roughly 60 percent of low-income nations.

Inflation and Financial Conditions

Global consumer-price inflation is expected to run 2.9 percent in 2025, above the pre-COVID norm, as tariffs pass through to core goods costs and labor markets stay tight in the United States and Europe. Combined with slower growth, the persistence of higher inflation limits monetary-policy room, leaving central banks “threading the needle” between stabilizing prices and avoiding deeper slumps. The bank also flags elevated bond-market volatility; U.S. thirty-year Treasury yields briefly topped 5 percent after court rulings threw federal tariff revenue into doubt, raising borrowing costs for emerging-market issuers.

Policy Prescriptions

Gill argues the fastest path back to stronger growth is tariff rollback. Cutting current duties in half would lift global output “slightly but meaningfully” over the next two years, the report calculates. He urges the Group of Twenty to begin simultaneous tariff cuts and to broaden existing preferential trade deals into comprehensive agreements that cover regulatory barriers as well. In parallel, developing countries should diversify export bases, invest in digital infrastructure, and strengthen fiscal frameworks to manage commodity-price swings.

The bank acknowledges Washington’s grievance that U.S. exporters faced higher average tariffs abroad than competitors did in America before April’s hikes. Nonetheless, it warns that matching barriers with even steeper levies is a self-inflicted wound: “The cure risks killing the patient.”

Reaction from Other Institutions and Markets

The World Bank follows the International Monetary Fund, which reduced its 2025 outlook to 2.8 percent in April, and the OECD, which trimmed global growth to 2.9 percent last week. White House officials dismissed the downgrades as “doomsday prognostications untethered to reality,” arguing that forthcoming tax cuts and repatriation incentives will unleash investment. Financial markets have been less sanguine: global equities fell 3 percent in the week following the tariff pause announcement, and trade-weighted measures of global freight volumes show a sharp deceleration since March.

What’s To Come

The bank’s baseline still assumes tariffs hold at early-June levels and a tentative U.S.–China negotiation avoids further escalation. Even under that moderate scenario, global trade is predicted to grow 1.8 percent next year, less than one-third its pre-2008 average of nearly 6 percent. Longer-term projections are equally subdued: world GDP growth is expected to average 2.5 percent in the 2020s, the slowest of any decade in sixty years.

Whether that forecast turns out to be too bleak or too optimistic will hinge on decisions due within weeks. If the July tariff deadline passes without a compromise, a second wave of duty increases could take effect just as U.S. consumer budgets feel the pinch from higher import prices and rising mortgage rates. Conversely, a rapid deal could remove some of the fog economists say is choking investment and trade.

For now, the World Bank’s message is blunt: the global economy is losing altitude, and the primary headwind is man-made. Rolling back trade barriers would not solve every problem, but in Gill’s words it is “the cheapest, quickest stimulus on the table.” Whether major governments seize that option—or continue escalating—will determine how deep the harm to living standards ultimately runs.

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