World Bank Sees Global Growth Slowing to 2.6% in 2026 Amid Persistent Headwinds

The World Bank says the global economy has proven more resilient than earlier anticipated, even as trade frictions and policy uncertainty continue to weigh on outlooks worldwide.

In its latest *Global Economic Prospects* report, the Bank projects that global growth will remain largely steady in the near term, moderating to 2.6 per cent in 2026 before rising slightly to 2.7 per cent in 2027. Both forecasts are higher than the Bank’s previous estimates issued in June.

The upgraded outlook is driven mainly by stronger-than-expected performance in major economies, particularly the United States, which accounts for nearly two-thirds of the upward revision to the 2026 growth projection.

Despite the improved forecasts, the World Bank cautions that if current trends persist, the 2020s could become the slowest decade for global economic growth since the 1960s.

The report also highlights widening global inequality. While most advanced economies had regained per-capita income levels above those seen before the COVID-19 pandemic by the end of 2025, about one in four developing economies remained poorer than in 2019.

Growth in 2025 was supported by a surge in trade ahead of expected policy changes and rapid adjustments in global supply chains. These temporary boosts are expected to fade in 2026 as trade momentum and domestic demand soften. However, easier financial conditions and fiscal expansion in several large economies are expected to cushion the slowdown.

Global inflation is projected to ease to 2.6 per cent in 2026, reflecting cooling labour markets and lower energy prices. Growth is expected to strengthen again in 2027 as policy uncertainty diminishes and global trade patterns stabilise.

World Bank Group Chief Economist Indermit Gill warned that although the global economy has become more resilient to shocks, its capacity to generate strong growth is steadily weakening. He cautioned that prolonged low growth, combined with historically high public and private debt, could strain public finances and destabilise credit markets.

Mr Gill urged governments to pursue bold reforms, including liberalising trade and private investment, cutting inefficient public spending, and investing in technology and education to avoid long-term stagnation and rising unemployment.

In developing economies, growth is forecast to slow from 4.2 per cent in 2025 to 4 per cent in 2026, before edging up to 4.1 per cent in 2027. This recovery is expected to be supported by easing trade tensions, stabilising commodity prices, improved financial conditions and stronger investment flows.

Low-income countries are projected to record faster growth, averaging 5.6 per cent in 2026–27, driven by stronger domestic demand, recovering exports and moderating inflation. Nevertheless, the report notes that this pace will still be insufficient to narrow the income gap with advanced economies.

Per-capita income growth in developing economies is expected to be about 3 per cent in 2026—around one percentage point below its average from 2000 to 2019. At this rate, incomes in developing economies would reach only about 12 per cent of those in advanced economies.

The World Bank warns that sluggish growth could worsen employment challenges in developing regions, where an estimated 1.2 billion young people are expected to enter the labour market over the next decade.

Addressing this challenge, the Bank says, will require comprehensive policy reforms focused on improving infrastructure, digital capacity and human capital, strengthening the business environment, and mobilising private investment.

The report also underscores the urgency of restoring fiscal sustainability in developing economies after years of overlapping shocks and rising debt burdens. A special chapter examines the role of fiscal rules—formal limits on borrowing and spending—in improving public finance management.

With public debt in emerging and developing economies at its highest level in over five decades, World Bank Deputy Chief Economist M. Ayhan Kose said restoring fiscal credibility has become critical. He noted that well-designed and credibly enforced fiscal rules can help stabilise debt, rebuild buffers and enhance resilience to future shocks.

According to the report, more than half of developing economies now operate at least one fiscal rule, and those that adopt such frameworks typically see their budget balances improve by about 1.4 percentage points of GDP within five years, provided the rules are well designed and supported by strong institutions.