Global Economy Struggles as Growth Slows and Debt Remains High

A World Bank report indicates that 25% of developing countries are now poorer than in 2019, prior to COVID-19. It also notes that global growth has slowed since the pandemic, and the current rate is insufficient to reduce extreme poverty and generate jobs in the areas most needed.

It predicts that in the coming years, the global economy will grow more slowly than it did during the challenging 1990s, while also maintaining record-high levels of public and private debt.

The report indicated that economic growth in emerging markets and developing economies is projected to decline from 4.2% last year to 4% this year.

Global growth is expected to stay relatively stable over the next two years, decreasing slightly from 2.7% in 2025 to 2.6% in 2026, and then rising back to 2.7% in 2027. This marks a small upward revision from the forecast made in June.

The World Bank predicts China’s growth will be 4.4% this year and 4.2% next year. These estimates are an improvement over last June’s assessment but still indicate the slowest growth in 35 years and fall short of the earlier 4.9% forecast for 2025 and the 5% goal.

The bank stated that China was more resilient than anticipated, with a government spending surge boosting domestic consumer expenditure and export sales supported by rerouting goods to markets outside the US.

The report states that many of the one in four developing countries with lower average incomes than in 2019 have faced wars and famines, which have hindered their recovery from the pandemic. Although recent growth has improved, it has not been enough to recover from earlier setbacks.

The bank noted that global economic growth was proving more resilient than anticipated, particularly following the US economy’s unexpectedly strong performance last year. However, progress is expected to be modest in 2026, as both developed and developing economies face challenges in advancing.

The US economy was projected to expand by 2.1% in 2025 and 2.2% in 2026, with upward revisions of 0.7 and 0.6 percentage points from the bank’s June forecast. Meanwhile, the euro area lagged, with growth of only 0.9% in 2025 and a forecast of 1.2% in 2026.

Indermit Gill, the Bank’s chief economist, stated that developing country nations must adhere to strict budget rules to support sustainable growth. He explained that this approach is similar for all countries aiming for faster development. While the global economy has demonstrated resilience, it has not generated sufficient growth to create jobs for young people, especially given the 1.2 billion under-16s expected to enter the labor market over the next decade.

He mentioned that ‘as each year passes, the global economy generates less growth and seems more resistant to policy uncertainty.” Nevertheless, maintaining sustained economic dynamism and resilience is unlikely without putting pressure on public finances and credit markets.

A significant number of low-income countries, predominantly in sub-Saharan Africa, faced a negative shock during the last six-year period.

The bank stated that the group comprised Botswana, Namibia, the Central African Republic, Chad, and Mozambique. South Africa and Nigeria, both with rapidly increasing populations, also did not see improvements in average incomes during that period, despite growth of 1.2% and 4.4% respectively last year.