This resilience reflects stronger-than-anticipated growth, particularly in the United States, which accounts for nearly two-thirds of the upward revision to the 2026 outlook. Nevertheless, the report warns that if current projections hold, the 2020s will be the weakest decade for global growth since the 1960s. The slow pace of expansion is widening global income disparities: by the end of 2025, nearly all advanced economies had per capita incomes above their 2019 levels, while around one in four developing economies remained poorer.

In 2025, growth was supported by a surge in trade ahead of policy changes and rapid adjustments in global supply chains. These temporary boosts are expected to fade in 2026 as trade momentum and domestic demand soften. However, easing global financial conditions and fiscal expansion in several major economies are expected to cushion the slowdown. Global inflation is projected to decline to 2.6 percent in 2026, reflecting softer labor markets and lower energy prices. Growth is expected to strengthen in 2027 as trade flows adjust and policy uncertainty diminishes.

“With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty,” said Indermit Gill, World Bank Group Chief Economist and Senior Vice President for Development Economics. “But economic dynamism and resilience cannot diverge for long without straining public finances and credit markets. To avoid stagnation and rising joblessness, governments must liberalize private investment and trade, rein in public consumption, and invest in new technologies and education.”

Growth in developing economies is projected to slow to 4 percent in 2026, from 4.2 percent in 2025, before edging up to 4.1 percent in 2027 as trade tensions ease, commodity prices stabilize, and financial conditions improve. Growth in low-income countries is expected to average 5.6 percent in 2026–27, supported by stronger domestic demand, recovering exports, and moderating inflation. Even so, this will not be sufficient to close the income gap with advanced economies. Per capita income growth in developing economies is projected at 3 percent in 2026, about one percentage point below its 2000–2019 average, leaving incomes at only 12 percent of advanced-economy levels.

These trends are likely to intensify job-creation challenges in developing economies, where 1.2 billion young people are expected to enter the labor force over the next decade. Addressing this challenge will require a comprehensive policy approach focused on three pillars: strengthening physical, digital, and human capital; improving the business environment through greater policy credibility and regulatory certainty; and mobilizing private capital at scale to support investment. Together, these measures can promote more productive and formal employment, boosting incomes and reducing poverty.

The report also highlights the need for developing economies to strengthen fiscal sustainability, which has been weakened by overlapping shocks, rising development needs, and increasing debt-servicing costs. A special-focus chapter examines the role of fiscal rules, which set clear limits on government borrowing and spending. Such rules are associated with stronger growth, higher private investment, more stable financial systems, and greater resilience to external shocks.

“With public debt in emerging and developing economies at its highest level in more than half a century, restoring fiscal credibility has become an urgent priority,” said M. Ayhan Kose, World Bank Group Deputy Chief Economist and Director of the Prospects Group. “Well-designed fiscal rules can help stabilize debt and rebuild policy buffers, but their effectiveness ultimately depends on credibility, enforcement, and political commitment.”

More than half of developing economies now have at least one fiscal rule in place, including limits on fiscal deficits, public debt, expenditures, or revenues. Countries adopting such rules typically see their budget balance improve by 1.4 percentage points of GDP after five years, and are 9 percentage points more likely to achieve multi-year fiscal improvements. However, the report notes that the long-term benefits depend heavily on institutional strength, economic conditions, and the design of the rules themselves.

KPL