Global Economic Prospects

The global economy has proved to be surprisingly shock-proof in the 2020s, the World Bank Group’s Chief Economist, Indermit Gill, writes in his Foreword. Yet a grimmer picture emerges over a longer horizon. Since the global recession in 2009, global growth has downshifted—it is now at a pace insufficient to reduce extreme poverty and create jobs where they’re needed most. If the forecasts in this edition of Global Economic Prospects materialize, the average growth rate of this decade will be the lowest since the start of the 1960s. Nearly all high-income economies would be richer—in GDP per person terms—than before the pandemic. Yet one in four developing countries will be poorer.

The global economy was resilient to increases in trade tensions last year, with global growth in 2025 estimated at the same pace as projected a year ago. Nevertheless, over one-quarter of emerging market and developing economies (EMDEs) still have per capita incomes below 2019 levels. Growth is expected to edge down this year and is subject to downside risks from escalating trade tensions, deteriorating financial market sentiment, fiscal concerns, or inflation surprises. Global efforts are needed to improve the trade environment, ease financing constraints, and mitigate climate risks. Policy makers in EMDEs should advance domestic reforms to diversify trade, strengthen macroeconomic frameworks, and remove structural bottlenecks.

The post-pandemic rebound marks the strongest recovery from a global recession in more than six decades. Five years after the pandemic’s onset, global GDP per capita in 2025 was roughly 10 percent higher than in 2019. Yet this strength masks a sharp divergence. Advanced economies have recovered robustly, while more than one-quarter of emerging market and developing economies (EMDEs)—particularly low-income countries and those affected by fragility and conflict—still have per capita incomes below pre-pandemic levels. Differences in the scale and duration of policy responses have partly contributed to this divergence. Amid a more difficult external environment, EMDEs need to accelerate reforms, rebuild policy space, and foster stronger job creation.

Emerging market and developing economy (EMDE) regions proved more resilient to last year’s trade tensions than expected, with trade supported by the temporary front-loading of exports and domestic demand underpinned by easier global financial conditions. Nevertheless, prospects over 2026–27 are uneven across regions and remain generally subdued amid a less favorable global trade environment. The challenge of generating sufficient job opportunities for the 1.2 billion young people who will reach working age in EMDE regions by 2035 is expected to intensify. Risks to the outlook remain tilted to the downside, including those from renewed trade frictions and policy uncertainty, tighter global financial conditions, elevated fiscal vulnerabilities, rising geopolitical tensions and conflict, and climate- and public-health-related shocks.

In low-income countries (LICs), growth firmed to 5 percent in 2025 and is projected to rise to 5.7 percent in 2026 before easing slightly to 5.6 percent in 2027. This outlook assumes an improvement in security conditions in several fragile states and continued easing of inflation. Stronger domestic demand, more favorable prices for some commodity exports, and stronger-than-expected economic activity in some FCS countries supported growth in 2025. Although real per capita income growth is projected to average about 2.8 percent in 2026–27, this remains insufficient to recover pandemic-era losses or generate adequate job creation, leaving extreme poverty widespread. Limited fiscal space from elevated debt-servicing costs and declining donor support continue to constrain development. Downside risks include the persistence or escalation of conflicts, further reductions in official development assistance, weaker global demand, lower commodity prices, renewed inflationary pressures, and more frequent and severe climate-related shocks.

Growth in the East Asia and Pacific region is projected to slow to 4.4 percent in 2026 and 4.3 percent in 2027. In China, growth is expected to decline to 4.4 percent this year and 4.2 percent next year, owing to subdued demand amid an ongoing structural slowdown. Elsewhere in the region, growth is projected to edge down to 4.5 percent this year and then recover to 4.7 percent in 2027, reflecting the delayed impact of higher trade barriers, with some offset from domestic policy support. Downside risks to the outlook dominate, with the potential for a renewed rise in trade tensions, tighter global financial conditions, and slower-than-expected growth in China. On the upside, technology-led productivity gains could materialize.

Growth in Europe and Central Asia is expected to hold steady at 2.4 percent in 2026, as solid domestic demand offsets weak euro area growth and heightened trade tensions, before firming to 2.7 percent in 2027, driven primarily by accelerating activity in Türkiye. The pickup reflects rebounding exports and rising private consumption amid easing inflation, but growth remains constrained by structural bottlenecks and population aging. Downside risks include a prolonged extension or intensification of Russia’s invasion of Ukraine, further escalation of trade tensions and policy uncertainty, persistent inflation, and tighter financial conditions. Upside risks include an earlier-than-expected end of active hostilities associated with the invasion, faster productivity gains from artificial intelligence, or stronger trade.

Growth in LAC is expected to edge up to only 2.3 percent in 2026 amid elevated trade tensions and uncertainty and sluggish domestic demand. Terms of trade in commodity exporters are expected to remain steady but at higher levels than before the pandemic, especially for metal and food commodity exporters. Real policy rates are expected to decline slowly in the largest regional economies. Risks to the regional outlook remain tilted to the downside. The region is highly exposed to trade shocks, with several economies dependent on exports to China and the United States. Elevated debt burdens limit fiscal space, and some countries are particularly exposed to external financing shocks given sizable current account deficits.

Growth in the Middle East, North Africa, Afghanistan and Pakistan region is estimated to have increased to 3.1 percent in 2025 and is projected to strengthen further to 3.6 percent in 2026 and 3.9 percent in 2027, mainly reflecting expanding activity in oil exporters. Growth in oil importers is also expected to strengthen, supported by easing inflation. There are both downside and upside risks to the outlook. Major downside risks include a re-escalation of armed conflicts, a tightening of global financial conditions, extreme weather events, and, for oil exporters, lower and more volatile oil prices. Upside risks are a faster-than-expected expansion of technology-led investment and a stronger commitment to implementing growth-enhancing structural reforms.

Growth in South Asia is projected to moderate to 6.2 percent in 2026, mainly reflecting the impact of increased trade restrictions. Growth is then set to increase to 6.5 percent in 2027, with firming domestic demand and recovering exports partly supported by strong services activity. Risks to the outlook are tilted to the downside and include further rises in trade barriers, a tightening of financial conditions amid banking sector vulnerabilities, increased social unrest, and more frequent or severe extreme weather events. In contrast, upside risks include possible progress in bilateral trade negotiations, faster technology-led investment growth, and potential benefits from more resilient political environments after elections in several economies.

Growth in Sub-Saharan Africa is projected to firm to 4.3 percent in 2026 and 4.5 percent in 2027, supported by strengthening investment and exports, continued easing of inflation, and reform momentum in several large economies. The pickup, however, is conditional on a stable external environment and improvements in security conditions in countries in fragile and conflict-affected situations. Despite the improved outlook, growth remains insufficient to generate enough jobs for the rapidly expanding labor force, limiting progress in reducing extreme poverty. Elevated public debt, high interest burdens, and declining official development assistance continue to constrain fiscal space, necessitating fiscal consolidation. Risks remain tilted to the downside, including weaker global growth, rising trade barriers, lower commodity prices, persistent conflict in some countries, climate-related shocks, tighter global financial conditions, and deeper-than-expected cuts to donor support.

With global shocks becoming more frequent and government debt among emerging market and developing economies (EMDEs) at historically high levels, fiscal rules are an important policy tool for promoting fiscal discipline. More than half of EMDEs have at least one fiscal rule, up from about 15 percent in 2000. Fiscal rules are associated with improvements in budget balances that extend into the medium and long term. The effects are most pronounced when institutions are strong and when economic conditions are favorable at the time of rule adoption. To enhance the effectiveness of fiscal rules, policy makers should design rules to account for trade-offs, invest in the credibility of and commitment to those rules, and foster a complementary policy environment.

Frontier markets—economies with limited but meaningful access to international financial markets—hold huge promise. Already home to one-fifth of the world’s people, they are projected to account for most of the increase in the global population through 2050. In addition to their market access, many frontier markets possess sizable natural resource endowments. Since 2000, however, per capita output and investment growth in the typical frontier market have both halved, and poverty reduction has slowed. Financial integration remains partial, with volatile capital inflows and rising debt vulnerabilities. About 40 percent of frontier markets have defaulted over the last quarter century. Frontier market policy priorities include advancing financial integration and development while containing associated risks, bolstering macroeconomic stability, and catalyzing productivity and investment growth. Outcomes in frontier markets will increasingly shape global job creation and development progress.