The World Bank says the global economy is showing greater resilience than earlier anticipated, in spite of persistent trade tensions and policy uncertainty.
The bank said this in its latest Global Economic Prospects report, released on Tuesday, which projects global growth to remain broadly steady over the next two years.
According to the report, global growth is expected to ease to 2.6 per cent in 2026 before rising slightly to 2.7 per cent in 2027, representing an upward revision from its June 2025 forecast.
It said that the improved outlook reflected better-than-expected performance in several economies, particularly the United States, which accounts for about two-thirds of the upward revision to the 2026 forecast.
The report, However, said that if the projections held, the 2020s would still be the weakest decade for global growth since the 1960s.
The report said that the slow pace of growth was widening the gap in living standards, as nearly all advanced economies had per capita incomes above their 2019 levels by the end of 2025.
“While about one in four developing economies had lower per capita incomes,” it said.
The report said growth in 2025 was supported by a surge in trade ahead of policy changes and rapid adjustments in global supply chains.
It said that these factors were expected to fade in 2026 as trade and domestic demand softened.
It, however, said that the easing global financial conditions and fiscal expansion in several large economies should help cushion the slowdown.
According to the report, global inflation is projected to decline to 2.6 per cent in 2026, driven by softer labour markets and lower energy prices, while growth is expected to strengthen in 2027.
Indermit Gill, World Bank Group’s Chief Economist and Senior Vice-President for Development Economics said that with each passing year, the global economy has become less capable of generating growth.
Gill said the global economy had become seemingly more resilient to policy uncertainty.
He said that economic dynamism and resilience could not diverge indefinitely without straining public finance and credit markets.
He said that the world economy was set to grow more slowly than in the 1990s while carrying record levels of public and private debt.
Gill urged governments in both emerging and advanced economies to liberalise private investment and trade, rein in public consumption, and invest in technology and education to avert stagnation and rising unemployment.
The report projected that growth in developing economies would slow to 4.0 per cent in 2026 from 4.2 per cent in 2025, before edging up to 4.1 per cent in 2027 as trade tensions ease and financial conditions improve.
It said that growth in low-income countries was expected to average 5.6 per cent in 2026–27, supported by stronger domestic demand, recovering exports and moderating inflation.
It, however, said this that will not be sufficient to narrow the income gap between developing and advanced economies.
The report said that per capita income growth in developing economies is projected at 3.0 per cent in 2026, about one percentage point below its 2000–2019 average.
“At this pace, per capita income in developing economies is expected to be only 12 per cent of the level in advanced economies.
“These trends could intensify job-creation challenges in developing economies, where about 1.2 billion young people will reach working age over the next decade,” it said.
It said that addressing the challenge would require strengthening physical, digital and human capital, improving the business environment, and mobilising private capital to support investment.
The report also emphasised the need for developing economies to strengthen fiscal sustainability, which has been weakened by overlapping shocks, rising development needs and rising debt-servicing costs.
According to the report, more than half of developing economies now operate at least one fiscal rule which includes limits on fiscal deficits, public debt, government expenditures, or revenue collection.
It said that developing countries that adopt fiscal rules show evidence of improved budget balances over time
Ayhan Kose, World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, said that restoring fiscal credibility had become an urgent priority.
According to Kose, this is because public debt in emerging and developing economies has been 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,” he said.
Kose, however, said that credibility, enforcement and political commitment would determine whether fiscal rules deliver stability and growth.
