World Bank Forecasts 2.6% Global Growth in 2026, Warns of Weakest Decade Since 1960s
The global economy is performing more robustly than anticipated despite ongoing trade disputes and policy uncertainty, the World Bank revealed in its latest Global Economic Prospects report.
Global growth is expected to remain largely steady over the next two years, slowing slightly to 2.6% in 2026 before rising to 2.7% in 2027—an upward revision from the Bank’s June forecast.
The improved outlook is largely driven by stronger-than-expected growth in the United States, which accounts for roughly two-thirds of the upward adjustment in the 2026 forecast.
Yet, the Bank cautioned that, if realized, the decade of the 2020s will mark the weakest period for global growth since the 1960s. This subdued pace is contributing to widening disparities in living standards: by the end of 2025, most advanced economies recorded per capita incomes above 2019 levels, whereas nearly a quarter of developing countries lagged behind.
In 2025, global growth benefited from a surge in trade ahead of anticipated policy changes and rapid adjustments in supply chains. These effects are projected to diminish in 2026 as both trade and domestic demand soften.
Nevertheless, easing financial conditions and fiscal stimulus in several major economies are expected to mitigate the slowdown. Global inflation is forecast to ease to 2.6% in 2026, reflecting softer labor markets and lower energy costs, with growth anticipated to rebound in 2027 as trade stabilizes and policy uncertainty declines.
“Over time, the global economy has become less capable of generating strong growth while simultaneously showing resilience to policy shocks,” said Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank. “Sustaining both resilience and dynamism is challenging without stressing public finances and credit markets. The world is set to grow slower than during the turbulent 1990s, all while carrying record public and private debt. To avoid stagnation and rising unemployment, governments must accelerate private investment and trade liberalization, rein in public consumption, and prioritize investment in technology and education.”
Growth in developing economies is expected to decelerate to 4% in 2026 from 4.2% in 2025, before rising slightly to 4.1% in 2027, supported by easing trade tensions, stabilizing commodity prices, improving financial conditions, and stronger investment flows. Low-income countries are projected to achieve higher growth, averaging 5.6% over 2026–27, underpinned by firm domestic demand, recovering exports, and moderating inflation.
Despite this, the income gap with advanced economies is expected to persist, with per capita income growth in developing countries projected at 3% in 2026—roughly a percentage point below the 2000–2019 average. At this rate, developing economies’ per capita income will remain about 12% of that in advanced economies.
The report highlights the challenges this presents for employment in developing economies, where 1.2 billion young people will enter the labor market over the next decade.
Addressing this will require a three-pronged policy approach: investing in physical, digital, and human capital to boost productivity; enhancing the business climate through credible policies and regulatory certainty; and mobilizing private capital at scale to support productive investment.
Together, these measures could shift employment toward formal, higher-productivity jobs, driving income growth and poverty reduction.
The Bank also stressed the importance of fiscal sustainability, which has deteriorated due to overlapping shocks, rising development needs, and growing debt-servicing costs. A dedicated section of the report examined fiscal rules in developing economies—mechanisms that set clear limits on government borrowing and spending.
Countries with such rules generally experience stronger growth, higher private investment, more stable financial sectors, and greater resilience to external shocks.
“With public debt in emerging and developing economies at its highest level in over fifty years, restoring fiscal credibility is critical,” said M. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank. “Fiscal rules can help stabilize debt, rebuild policy buffers, and improve shock responsiveness. However, their success depends on credibility, enforcement, and political commitment.”
Over half of developing economies now maintain at least one fiscal rule, covering deficits, debt, spending, or revenue. Empirical evidence shows that adopting fiscal rules improves budget balances by 1.4 percentage points of GDP within five years, even after accounting for interest payments and business cycle fluctuations.
It also raises the probability of multi-year improvements in budget performance by 9 percentage points. Yet, the medium- and long-term benefits of these rules are closely linked to institutional strength, economic context, and careful design, the report notes.
