The global economy is showing greater resilience than previously expected, but the recovery remains fragile and uneven, according to the latest Global Economic Prospects report released by the World Bank.
The Bank projects global growth to remain broadly stable over the next two years, easing slightly to 2.6 per cent in 2026 before rising to 2.7 per cent in 2027. Both figures represent upward revisions from forecasts issued in mid-2025, reflecting stronger-than-anticipated performance in major economies.
The improved outlook is driven largely by the United States, which accounts for nearly two-thirds of the upward revision to the 2026 growth forecast. Other advanced economies have also shown greater resilience, supported by easing financial conditions and fiscal expansion in select markets.
However, the World Bank cautioned that the apparent stability masks deeper structural weaknesses that threaten long-term growth. If current projections hold, the 2020s are on track to become the weakest decade for global economic growth since the 1960s, raising concerns about employment, income growth and fiscal sustainability.
Uneven recovery deepens inequality
The report highlights widening disparities between advanced and developing economies. By the end of 2025, nearly all high-income countries had restored per-capita incomes above pre-pandemic levels. In contrast, about one-quarter of developing economies remained poorer than they were in 2019, underscoring an uneven and fragile recovery.
Growth in 2025 was temporarily supported by a surge in global trade as firms adjusted supply chains ahead of anticipated policy changes. These tailwinds are expected to fade in 2026 as trade activity and domestic demand soften.
Although global inflation is forecast to decline to 2.6 per cent in 2026, reflecting weaker labour markets and lower energy prices, the World Bank warned that easing price pressures alone would not be enough to sustain strong growth.
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Debt and policy risks loom
The World Bank’s Chief Economist, Indermit Gill, warned that the global economy is becoming less capable of generating robust growth, even as it shows resilience to policy uncertainty.
He noted that record levels of public and private debt, combined with prolonged weak growth, could strain public finances and undermine credit markets if decisive reforms are delayed.
Developing economies face particular challenges. Growth in these countries is expected to slow from 4.2 per cent in 2025 to 4.0 per cent in 2026, before edging up to 4.1 per cent in 2027. Low-income countries are projected to grow faster—averaging 5.6 per cent in 2026–27—but this pace remains insufficient to close income gaps with advanced economies.
Per-capita income growth in developing economies is projected at just 3 per cent in 2026, leaving incomes at roughly 12 per cent of advanced-economy levels. At the same time, an estimated 1.2 billion young people are expected to enter the labour force in developing countries over the next decade, intensifying pressure on job creation.
Call for reforms
The World Bank urged governments to prioritise reforms that support long-term growth, including improving infrastructure, expanding digital capacity, strengthening education and skills development, and creating clearer, more credible policy environments to attract private investment.
The report also stresses the need for fiscal discipline, noting that public debt in emerging and developing economies is at its highest level in more than 50 years. A special section of the report examines fiscal rules—formal limits on government borrowing and spending—as a tool to restore fiscal credibility and resilience.
According to the Bank, countries that adopt well-designed and credibly enforced fiscal rules typically see budget balances improve significantly within five years, though success depends heavily on institutional strength and political commitment.
While the global economy has avoided a sharper slowdown for now, the World Bank warned that without sustained reforms and investment, today’s resilience could give way to prolonged stagnation.
