The World Bank Group has forecast a two-year growth rate of 5.6% for low-income countries, citing stronger domestic demand, recovering exports, and declining inflation as key drivers.
In its latest Global Economic Prospects report, the institution noted that while growth prospects for 2026–27 remain positive, the income gap between developing and advanced economies will persist.
“Per capita income growth in developing economies is projected at 3% in 2026, nearly a percentage point below its 2000–2019 average. At this pace, per capita income in developing economies will reach only 12% of the level in advanced economies,” the report stated.
Global Outlook
Global inflation is expected to ease to 2.6% in 2026, reflecting softer labor markets and lower energy prices. Growth is projected to rebound in 2027 as trade flows stabilize and policy uncertainty diminishes.
For developing economies, growth is forecast to slow to 4% in 2026 from 4.2% in 2025, before edging up to 4.1% in 2027. The World Bank’s Chief Economist, Indermit Gill, cautioned that the global economy is becoming less capable of generating growth despite showing resilience to policy uncertainty.
“Economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets,” Gill warned. “Governments must liberalize private investment and trade, rein in public consumption, and invest in technology and education to avert stagnation and joblessness.”
Fiscal Sustainability Challenges
The report highlights the urgent need for developing economies to strengthen fiscal sustainability, which has been undermined by overlapping shocks, rising debt-servicing costs, and growing development needs.
A special-focus chapter emphasizes the role of fiscal rules—limits on borrowing and spending—in stabilizing public finances. These rules, the report notes, are linked to stronger growth, higher private investment, and greater resilience to external shocks.
Deputy Chief Economist M. Ayhan Kose stressed the importance of restoring fiscal credibility:
“Well-designed fiscal rules can help governments stabilize debt and rebuild policy buffers. But credibility, enforcement, and political commitment are essential for success.”
Currently, more than half of developing economies have at least one fiscal rule in place. Countries adopting such measures typically see budget balances improve by 1.4 percentage points of GDP within five years.
Global Growth Trends
Despite ongoing trade tensions, the global economy has shown more resilience than expected. Growth is projected to remain steady at 2.6% in 2026 before rising slightly to 2.7% in 2027—an upward revision from the June forecast. Much of this improvement is attributed to stronger-than-expected performance in the United States.
However, the report warns that the 2020s may become the weakest decade for global growth since the 1960s. By the end of 2025, nearly all advanced economies had per capita incomes above 2019 levels, while one in four developing economies remained below.
Growth in 2025 was buoyed by a surge in trade and supply chain adjustments, but these temporary boosts are expected to fade in 2026. Even so, easing financial conditions and fiscal expansion in major economies should help cushion the slowdown.
