The global economy is showing more resilience than previously expected, even as trade tensions, policy uncertainty, and high debt levels continue to weigh on prospects, according to the World Bank. In its latest Global Economic Prospects report released on Tuesday, the institution projected that global growth would remain broadly steady over the next two years, supported by easing inflation and improved financial conditions in major economies.
According to the report, global output growth is expected to slow modestly to 2.6 per cent in 2026 before edging up to 2.7 per cent in 2027. These projections represent an upward revision from the World Bank’s June 2025 forecast, reflecting stronger-than-anticipated performance in several large economies, most notably the United States.
The World Bank noted that the US economy alone accounts for nearly two-thirds of the upward revision to the 2026 global growth outlook, underscoring the continued influence of advanced economies on global momentum.
A resilient outlook with long-term weakness
Despite the near-term stability, the World Bank cautioned that the broader picture remains challenging. If current projections hold, the 2020s are on track to become the slowest decade for global growth since the 1960s. According to the report, this prolonged period of subdued expansion risks deepening inequalities between and within countries.
Nearly all advanced economies had regained or surpassed their pre-pandemic per capita income levels by the end of 2025, the report said. In contrast, about one in four developing economies still had per capita incomes below their 2019 levels, highlighting the uneven nature of the global recovery.
This divergence in income growth, the World Bank warned, could have lasting implications for living standards, poverty reduction, and social stability in lower-income regions.
What supported growth in 2025
The report explained that global growth in 2025 benefited from a temporary surge in trade activity, as firms accelerated shipments ahead of anticipated policy changes. Rapid adjustments in global supply chains also played a role, helping businesses adapt to ongoing geopolitical and trade-related disruptions.
However, these supportive factors are expected to fade in 2026. According to the World Bank, global trade growth and domestic demand are likely to soften as the effects of earlier front-loaded activity dissipate. This slowdown, the report said, will test the durability of the current recovery.
That said, easing global financial conditions and fiscal expansion in several large economies are expected to cushion the impact. Lower borrowing costs and targeted public spending could help sustain investment and consumption, particularly in countries with greater fiscal space.
Inflation easing, but challenges remain
Global inflation is projected to continue its downward trend, declining to 2.6 per cent in 2026, according to the report. The easing is attributed to softer labour markets and lower energy prices, developments that could provide some relief to households and policymakers alike.
With inflation moderating, the World Bank expects growth to strengthen slightly in 2027. However, it cautioned that the recovery remains fragile and highly dependent on policy choices, geopolitical developments, and financial stability.
Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice-President for Development Economics, offered a sober assessment of the longer-term outlook. According to Gill, the global economy has become increasingly less capable of generating strong growth with each passing year, even as it appears more resilient to shocks and policy uncertainty.
“Economic dynamism and resilience cannot diverge indefinitely without straining public finances and credit markets,” Gill said, warning that the current combination of low growth and high debt is unsustainable over the long run.
Debt, dynamism, and policy trade-offs
Gill noted that the world economy is now growing more slowly than it did in the 1990s while carrying record levels of public and private debt. This combination, he said, limits governments’ ability to respond to future shocks and increases the risk of financial stress.
To counter these trends, Gill urged governments in both advanced and emerging economies to liberalise private investment and trade, rein in public consumption, and increase investment in technology and education. Without such reforms, he warned, many countries could face prolonged stagnation and rising unemployment.
This call reflects a broader concern within multilateral institutions that structural reforms have slowed globally, even as demographic pressures and technological change demand more agile policy responses.
Outlook for developing and low-income economies
The report projected that growth in developing economies would slow slightly to 4.0 per cent in 2026, down from 4.2 per cent in 2025, before edging up to 4.1 per cent in 2027. According to the World Bank, easing trade tensions and improved financial conditions should support the modest rebound.
Low-income countries are expected to fare somewhat better, with growth averaging 5.6 per cent in 2026 and 2027. This performance is projected to be supported by stronger domestic demand, recovering exports, and moderating inflation.
However, the World Bank stressed that these growth rates will not be sufficient to close the income gap with advanced economies. Per capita income growth in developing economies is projected at 3.0 per cent in 2026, roughly one percentage point below the average recorded between 2000 and 2019.
“At this pace, per capita income in developing economies is expected to be only 12 per cent of the level in advanced economies,” the report said.
Jobs, youth, and future pressures
One of the report’s less widely discussed but critical warnings relates to demographics. According to the World Bank, about 1.2 billion young people in developing economies are expected to reach working age over the next decade. Slower income growth and limited job creation could intensify employment challenges, particularly in regions already struggling with high youth unemployment.
Addressing this looming pressure, the report said, will require sustained investment in physical, digital, and human capital. Improving the business environment and mobilising private capital to support productive investment will also be essential.
This demographic dimension, analysts note, adds urgency to reform efforts. Without faster growth and job creation, social and economic strains could deepen, even in countries that post respectable headline growth figures.
Fiscal rules and credibility under scrutiny
The World Bank also highlighted growing concerns about fiscal sustainability in developing economies. According to the report, overlapping shocks, rising development needs, and increasing debt-servicing costs have weakened public finances across many countries.
More than half of developing economies now operate at least one fiscal rule, such as limits on budget deficits, public debt, government spending, or revenue collection. The report said there is evidence that countries adopting such rules tend to achieve improved budget balances over time.
Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, said restoring fiscal credibility has become an urgent priority. According to Kose, public debt in emerging and developing economies is now at its highest level in more than half a century.
“Well-designed fiscal rules could help stabilise debt and rebuild policy buffers, and respond more effectively to shocks,” Kose said. However, he added that credibility, enforcement, and political commitment would ultimately determine whether such rules deliver stability and growth.
The World Bank’s latest projections arrive at a critical moment for the global economy. With inflation easing and growth stabilising, policymakers face a narrowing window to implement reforms that could lift long-term potential. Failure to act, the report suggests, risks locking in a decade of weak growth, rising inequality, and heightened fiscal stress.
For investors, businesses, and governments, the message is mixed. Near-term resilience offers some reassurance, but the longer-term challenges highlighted by the World Bank underscore the need for coordinated and credible policy action.
The World Bank’s latest Global Economic Prospects report paints a picture of a global economy that is holding steady in the face of uncertainty but struggling to regain momentum. While short-term growth has been revised upward, deeper structural issues, from high debt to weak productivity and widening income gaps, continue to cloud the horizon. Whether the coming years mark a turning point or an extension of the weakest growth decade in decades will depend largely on the policy choices governments make now.
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