The US will remain the fastest-growing major economy in the world this year and next as the impact of tariffs has been less severe than expected, the World Bank said.

In its latest update on the global economy, the World Bank upgraded its annual growth forecast for the US by 0.6 percentage points to 2.2 per cent, the largest upward revision for any country since its last projections in June.

The previous estimates were made after President Trump’s “liberation day” tariffs announcement and before a series of trade deals that reduced duties for selected countries.

• US economy expands at the fastest rate in two years

The World Bank also updated its 2025 projection for the US from an estimated 1.4 per cent annual growth to 2.1 per cent as the world’s largest economy benefited from surging spending on artificial intelligence (AI).

“Growth in advanced economies in 2025 remained resilient to the escalation in trade tensions and rise in policy uncertainty, with the immediate drag of these factors proving less pronounced than anticipated in June,” the World Bank said.

“Trade policy changes were less disruptive than expected owing to front-loading of traded goods ahead of tariff increases; delayed tariff implementation; successful efforts by businesses to pivot their trade to jurisdictions covered by existing lower-tariff agreements; expanded use of tariff mitigation techniques such as bonded warehouses; and limited and delayed pass-through of tariff costs to consumers.”

The World Bank expects China’s economy to grow below the Communist Party’s 5 per cent target at 4.4 per cent this year and 4.2 per cent in 2027, the weakest level in 35 years. The world’s second-largest economy will suffer as “subdued consumer confidence, the prolonged property sector downturn, and a softer labour market are envisaged to weigh on consumption and investment”.

• Welcome back to the past with US tariffs and state capitalism

The eurozone’s 21 economies are on course to expand at a rate of 0.9 per cent this year, slowing from 1.4 per cent in 2025, while Japan’s economy is forecast expand by 0.8 per cent in 2026 and 2027.

Average global growth will fall slightly from 2.7 per cent to 2.6 per cent this year, 0.2 percentage points higher than in the June outlook, with most of the upgrade down to the outperformance of the US economy.

The World Bank said the global recovery from the pandemic was the strongest rebound from a recession in six decades but average growth in the 2020s would mark the weakest period of expansion since the 1960s.

“With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty,” Indermit Gill, chief economist at the World Bank, said.

“Economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets. Over the coming years, the world economy is set to grow slower than it did in the troubled 1990s.

“To avert stagnation and joblessness, governments in emerging and advanced economies must aggressively liberalise private investment and trade, rein in public consumption, and invest in new technologies and education.”