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The World Bank has projected that the global economy will grow at a steady rate of 2.7% in both 2025 and 2026, maintaining the same pace as in 2024. However, the long-term growth outlook for developing economies is the weakest it has been since the turn of the century, as noted in the World Bank’s latest Global Economic Prospects report.
Key Highlights
- Global Growth Stabilization:
- The global economy is expected to stabilize at 2.7% growth annually through 2026.
- Developing Economies Lagging:
- Growth in developing economies is forecast to remain steady at about 4% over the next two years, lower than the pre-pandemic average.
- This level of growth is insufficient to significantly reduce poverty or meet broader development goals.
- Historical Trends:
- During the first decade of the 21st century, developing economies experienced robust growth of 5.9%, the fastest pace since the 1970s.
- Growth has since declined, dropping to 5.1% in the 2010s and 3.5% in the 2020s.
- The widening gap between advanced and developing economies has been exacerbated by slower per capita income growth in developing countries, excluding China and India.
- Trade Restrictions and Slower Progress:
- The introduction of global trade restrictions in 2024 was five times higher than the average between 2010 and 2019, further dampening economic growth.
- Economic Influence of Developing Countries:
- Developing economies now account for 45% of global GDP, up from 25% in 2000.
- Over 40% of their goods exports are traded with other developing economies, a significant increase from 20 years ago.
- These economies have also become crucial sources of global capital flows, remittances, and development assistance.
- Ripple Effects of Major Economies:
- The growth of leading developing economies—China, India, and Brazil—has an outsized impact on others. A one-percentage-point increase in GDP growth among these three countries tends to boost GDP in other developing economies by 2% cumulatively over three years.
The report emphasizes that the next 25 years will be more challenging for developing economies compared to the last 25. Slower growth, trade restrictions, and reduced convergence with advanced economies threaten progress on poverty reduction and development goals.
World Bank Chief Economist Indermit Gill cautioned that, despite the gains in economic influence over the past two decades, developing economies face an uphill battle to sustain progress amid these challenges.
The report underscores the importance of strengthening trade relationships and capital flows between developing economies to mitigate external vulnerabilities and foster sustainable growth.
As the global economy stabilizes, efforts must focus on reducing the income gap, supporting trade liberalization, and fostering innovation to enable developing economies to meet their long-term aspirations.