World Bank Predicts Global Economic Growth to Slow to 2.6% in 2026

Tashkent, Uzbekistan (UzDaily.com) — The global economy has shown greater resilience than expected, despite ongoing trade tensions and uncertainty in economic policy, according to the latest World Bank report, Global Economic Prospects.

The report forecasts that global GDP growth will remain broadly stable over the next two years, slowing to 2.6% in 2026 and accelerating slightly to 2.7% in 2027, surpassing the June projection. This resilience is largely driven by stronger-than-expected economic performance in the United States, which accounts for roughly two-thirds of the upward revision for 2026.

However, if the projections hold, the 2020s could become the decade of the weakest global economic growth since the 1960s. Slow growth continues to widen disparities in living standards: by the end of 2025, per capita income in most advanced economies had surpassed 2019 levels, while about a quarter of developing countries experienced declines.

In 2025, global economic activity was supported by an uptick in trade, influenced by shifts in economic policy and the restructuring of global supply chains. In 2026, these stimulative factors are expected to weaken due to slower trade growth and reduced domestic demand.

At the same time, easing financial conditions and expansionary fiscal and tax policies in several major economies are expected to cushion the slowdown. Global inflation is projected at 2.6% in 2026, reflecting slower labor markets and falling energy prices. In 2027, economic growth is expected to accelerate due to adjustments in trade flows and reduced political uncertainty.

“While the global economy is becoming less capable of sustaining rapid growth, it is simultaneously more resilient to political uncertainty,” notes Indermit Gill, Chief Economist of the World Bank. He cautions that discrepancies between economic dynamism and resilience cannot persist indefinitely without affecting public finances and credit markets.

To avoid stagnation and rising unemployment, governments in both developing and advanced economies need to actively liberalize private investment and trade, limit government consumption, and invest in new technologies and education.

In developing countries, growth is expected to slow to 4% in 2026 from 4.2% in 2025, then slightly pick up to 4.1% in 2027, supported by easing trade tensions, stabilized commodity prices, improved financial conditions, and increased investment flows. Low-income countries are expected to grow by an average of 5.6%, driven by stronger domestic demand, export recovery, and easing inflation. Per capita income in developing countries is projected to rise by 3% in 2026, roughly one percentage point below the 2000–2019 average and reaching only 12% of the level in advanced economies.

Slower growth poses additional challenges for employment. Over the next decade, 1.2 billion young people in developing countries will reach working age. Addressing this challenge will require a comprehensive approach, including strengthening physical, digital, and human capital, improving the business climate, and mobilizing private investment. Collectively, these measures can support the creation of more productive formal jobs, raise incomes, and reduce poverty.

The report also emphasizes the importance of fiscal sustainability, which has weakened in recent years due to crises, growing development needs, and rising debt servicing costs. The World Bank highlights the experience of developing countries implementing fiscal rules that limit public borrowing and spending. Such rules contribute to stronger economic growth, increased private investment, financial sector stability, and greater resilience to external shocks.

“Public debt in emerging market economies has reached record levels over the past fifty years, making the restoration of confidence in fiscal policy critically important,” says Ayhan Kose, Deputy Chief Economist of the World Bank. He stresses that the effectiveness of fiscal rules depends on trust, enforcement, and political will. Proper use of such rules allows governments to stabilize debt, build reserve buffers, and respond more effectively to economic shocks.

Currently, more than half of developing countries apply at least one fiscal rule, covering deficit limits, debt ceilings, expenditure controls, or revenue targets. Evidence shows that five years after implementing fiscal rules—accounting for interest payments and business cycle fluctuations—budget balance improves on average by 1.4 percentage points of GDP, and the likelihood of sustained multi-year improvement rises by nine percentage points. However, medium- and long-term outcomes depend on institutional quality, economic conditions, and the design of the rules themselves.