Global economy holds up despite trade tensions, but developing world still lags: World Bank

The global economy is showing greater resilience than expected despite historic levels of trade disruption and policy uncertainty, but the recovery remains uneven, with a significant share of developing economies still worse off than before the pandemic, the World Bank said in its latest Global Economic Prospects report.

Global growth is projected to remain broadly stable over the next two years, easing to 2.6% in 2026 before rising to 2.7% in 2027—an upward revision from the Bank’s June forecast.

Much of the improvement reflects stronger-than-anticipated growth in the United States, which accounts for nearly two-thirds of the upward revision for 2026.

However, the report cautions that if current projections hold, the 2020s will still emerge as the weakest decade for global growth since the 1960s. Sluggish growth is widening income disparities across countries: while almost all advanced economies had per capita incomes above 2019 levels by the end of 2025, around one in four developing economies remained poorer than before the pandemic.

Growth in 2025 was supported by a pre-emptive surge in trade ahead of policy changes and rapid adjustments in global supply chains. These temporary tailwinds are expected to fade in 2026 as trade momentum and domestic demand soften. Easing global financial conditions and fiscal expansion in several large economies are likely to cushion the slowdown, the report said.

Global inflation is projected to moderate to 2.6% in 2026, reflecting softer labour markets and lower energy prices, while growth is expected to strengthen modestly in 2027 as trade patterns adjust and policy uncertainty eases.

“With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty,” said Indermit Gill, Chief Economist of the World Bank Group. “But economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets.”

He warned that the world economy is set to grow more slowly than even during the troubled 1990s, while carrying record levels of public and private debt. To avoid stagnation and joblessness, Gill said governments must liberalise trade and private investment, rein in public consumption, and invest aggressively in education and new technologies.

Developing economies are expected to see growth slow to 4% in 2026 from 4.2% in 2025, before inching up to 4.1% in 2027 as trade tensions ease, commodity prices stabilise and financial conditions improve. Low-income countries are projected to grow faster, averaging 5.6% over 2026–27, supported by firmer domestic demand and recovering exports.

Despite this, income convergence will remain slow. Per capita income growth in developing economies is projected at 3% in 2026—around one percentage point below the average seen between 2000 and 2019. At this pace, per capita incomes in developing economies would remain just 12% of those in advanced economies.

The report flags a mounting jobs challenge, particularly in developing countries, where an estimated 1.2 billion young people will enter the working-age population over the next decade. Addressing this will require a three-pronged policy push: strengthening physical, digital and human capital; improving policy credibility and regulatory certainty to encourage firm expansion; and mobilising private capital at scale to boost investment.

The World Bank also underscored the need to restore fiscal sustainability in developing economies, which has weakened due to overlapping shocks, rising development needs and higher debt-servicing costs. Public debt in emerging and developing economies is now at its highest level in more than 50 years.

A special chapter of the report examines fiscal rules—such as limits on deficits, debt or spending—which are now in place in more than half of developing economies. Countries that adopt such rules typically see budget balances improve by an average of 1.4 percentage points of GDP after five years, the Bank said.

“With public debt at historic highs, restoring fiscal credibility has become an urgent priority,” said M. Ayhan Kose, the World Bank’s Deputy Chief Economist. “Fiscal rules can help, but their success ultimately depends on strong institutions, credible enforcement and sustained political commitment.”