Global Economic Prospects

International discord—particularly over trade—has upended many of the policy certainties that helped shrink extreme poverty and expand prosperity after the end of World War II, says World Bank Group Chief Economist and Senior Vice President Indermit Gill in his Foreword. Global growth this year is expected to be the weakest in 17 years, outside of outright recessions. By 2027, global GDP growth is expected to average just 2.5 percent in the 2020s—the slowest pace of any decade since the 1960s. The time has come for a reset, he says—one that involves renewed global cooperation, restored fiscal responsibility, and a relentless focus on creating jobs.

Global growth is slowing following a sharp rise in trade barriers and heightened policy uncertainty. Growth is expected to weaken to 2.3 percent in 2025—a significant downgrade from previous forecasts—with only a tepid recovery expected in 2026-27. Growth could be lower if trade restrictions escalate or if policy uncertainty persists. Other downside risks include weaker-than-expected growth in major economies, worsening conflicts, and extreme weather events. Multilateral policy efforts are needed to foster a more predictable and transparent environment for resolving trade tensions. Policy makers need to keep inflation contained and strengthen fiscal positions, while also undertaking reforms that enhance institutional quality, stimulate private investment, and improve human capital and labor market functioning.

All emerging market and developing economy (EMDE) regions face a challenging outlook amid the rising trade tensions and heightened global uncertainty, with growth forecasts for 2025 downgraded in all EMDE regions relative to January projections. Growth is projected to slow in East Asia and Pacific as well as in Europe and Central Asia—both regions that are highly reliant on global trade—and, to a lesser extent, in South Asia. In Latin America and the Caribbean, growth is projected to be the lowest among EMDE regions over the forecast horizon, as activity is held back by high trade barriers and longstanding structural weaknesses. In regions with a large number of commodity exporters—including the Middle East and North Africa and Sub-Saharan Africa—growth is anticipated to be weighed down by the weakening outlook for external commodity demand.

In low-income countries (LICs), growth is projected to rise to 5.3 percent in 2025 and average 6.1 percent in 2026-27. However, this outlook hinges on a de-escalation of conflict in some countries and a moderation in inflation. The weaker global environment has led to a significant downward revision to LICs' growth this year. Although per capita income is projected to grow by 3 percent annually, this is insufficient to recover pandemic-related losses or reduce extreme poverty, which has been exacerbated by violent conflict. Trade tensions have been particularly harmful to commodity exporters. Reduced fiscal space from debt costs and declining donor support continues to hamper development. Downside risks include escalating conflicts, food insecurity, weaker demand, persistent inflation, and extreme weather.

Growth in the East Asia and Pacific region is projected to slow to 4.5 percent in 2025 and to 4.0 percent in both 2026 and 2027, reflecting rising trade barriers and heightened policy uncertainty. In China, growth is expected to decline to 4.5 percent in 2025, with fiscal support partly offsetting the impact of trade tensions. Elsewhere in the region, growth is projected to slow to 4.2 percent this year due to higher trade barriers and a weaker external environment. Downside risks to the outlook dominate, with persistently elevated policy uncertainty, escalating trade tensions, and more frequent natural disasters. Upside risks from a partial resolution of trade tensions or technology adoption could also materialize.

Growth in Europe and Central Asia is projected to slow to 2.4 percent in 2025 before edging up to 2.6 percent in 2026-27, remaining below its 2010-19 average and limiting progress in job creation and income convergence. A challenging external environment—marked by rising trade barriers and heightened policy uncertainty—is expected to weigh on regional activity. The 2025 slowdown mainly reflects a step-down in the Russian Federation. Downside risks include a more protracted or intensified phase of Russia’s invasion of Ukraine, further escalation of global trade tensions and policy uncertainty, weaker euro area growth, and persistent inflation. Upside risks include an earlier-than-expected end to active hostilities associated with the invasion or faster adoption of artificial intelligence.

Growth in Latin America and the Caribbean (LAC) is forecast to remain steady at 2.3 percent in 2025 and then firm to an average of 2.5 percent in 2026-27. Although Mexico will be most directly affected by the rise in recent trade barriers, given its tight integration with the U.S. economy, the entire region will be indirectly impacted by policy uncertainty through trade, investment, and financial links. Risks to the outlook remain tilted to the downside: weaker-than-expected global growth could further dampen activity, while tightening global financial conditions may raise debt-servicing costs. A sharper-than-expected slowdown in U.S. growth could impact exports and remittances, further constraining per capita income gains.

Growth in the Middle East and North Africa region is projected to strengthen to 2.7 percent in 2025 and average 3.9 percent in 2026-27, mainly due to an expansion of oil activity in oil exporters. Growth in oil importers is also expected to rise, reflecting an assumed stabilization of armed conflicts in the region and waning inflationary pressures. However, growth forecasts have been downgraded from January projections amid a rise in trade barriers. Downside risks to the outlook include the possibility that global trade tensions will escalate further, policy uncertainty will remain elevated, or global financial conditions will deteriorate. Lower-than-expected oil prices and a re-escalation of armed conflicts could also dampen growth.

Although growth in South Asia is projected to remain the fastest among emerging market and developing economy regions, regional prospects are dimming amid rising global trade barriers and elevated uncertainty. Growth is expected to moderate to 5.8 percent in 2025 and then average 6.2 percent in 2026-27, remaining below the pre-pandemic average. Risks to the growth outlook are tilted to the downside, with the possibility of intensified trade barriers and heightened global policy uncertainty as the most pressing risks. Other downside risks include tighter global financial conditions, instability in the financial sector, surges in violence and social unrest, further declines in official aid, and extreme weather events.

Growth in Sub-Saharan Africa (SSA) is forecast to edge up from 3.5 percent in 2024 to 3.7 percent in 2025 and then average 4.2 percent in 2026-27. Growth this year and next is expected to be weaker than previously anticipated, reflecting a deteriorating external environment and persistent domestic headwinds. High government debt and interest rates have constrained fiscal space, forcing consolidation amid reduced aid. Per capita income growth remains insufficient to significantly reduce extreme poverty. The region also faces an acute jobs challenge, as employment creation continues to lag behind the rapid expansion of the working-age population. Downside risks include weaker external demand from trade tensions, China's slowdown, political instability, rising sovereign spreads, and climate-related threats such as droughts and extreme weather events.

Chapter 3 of the June Global Economic Prospects report will be released on June 16. It examines the decade-long decline in foreign direct investment (FDI) to emerging market and developing economies as a share of their GDP, the global and domestic factors behind this trend, and the policy actions needed to revive FDI and maximize its development impact.

Chapter 4 of the June Global Economic Prospects report will be released on June 26. It explores the severe development challenges faced by economies in fragile and conflict-affected situations (FCS), where over one billion people live. The chapter examines the economic toll of conflict, the widening gap in output, and the urgent need for tailored policies to foster inclusive growth, job creation, and lasting stability.