The World Bank Group has projected that growth in low-income countries will average 5.6 percent in 2026–27, driven by stronger domestic demand, a rebound in exports, and easing inflation. This was disclosed in its latest Global Economic Prospects report released on Tuesday.
However, the institution warned that such growth will not be enough to close the income gap between developing and advanced economies. According to the report, per capita income growth in developing economies is projected to stand at 3 percent in 2026, which is about one percentage point below the 2000–2019 average. At this pace, per capita income in developing economies will be only 12 percent of the level seen in advanced economies.
The report further stated that growth in developing economies is expected to slow to 4 percent in 2026 from 4.2 percent in 2025 before slightly increasing to 4.1 percent in 2027. The rebound is expected as trade tensions ease, commodity prices stabilize, financial conditions improve, and investment inflows strengthen.
The World Bank warned that these economic trends could worsen the job creation challenges facing developing economies, where 1.2 billion young people are expected to reach working age over the next decade. To address this challenge, the report highlighted three main policy areas: strengthening physical, digital, and human capital to improve productivity and employability; improving the business environment by ensuring policy credibility and regulatory certainty; and mobilizing private capital on a large scale to support investment. These measures, it noted, can help shift job creation toward more productive and formal employment, contributing to income growth and poverty reduction.
The report also noted that the global economy is proving more resilient than previously expected despite ongoing trade tensions and policy uncertainties. Global growth is projected to remain relatively steady over the next two years, slowing slightly to 2.6 percent in 2026 before picking up to 2.7 percent in 2027. This represents an upward revision from the World Bank’s June forecast.
The resilience in global growth, according to the Bank, is largely due to stronger-than-expected performance in the United States, which accounts for nearly two-thirds of the upward revision in the 2026 forecast. Still, the report cautioned that if the forecasts hold, the 2020s are on track to be the weakest decade for global growth since the 1960s.
The report found that this sluggish pace is widening the gap in living standards across the world. By the end of 2025, nearly all advanced economies are expected to have per capita incomes above 2019 levels, while about one in four developing economies will continue to have lower per capita incomes than before the pandemic.
The report attributed 2025’s growth to a surge in trade activities ahead of expected policy changes and swift adjustments in global supply chains. However, these boosts are likely to fade in 2026 as trade and domestic demand soften. Despite this, easing global financial conditions and fiscal expansion in several large economies are expected to help cushion the slowdown.
Global inflation is projected to decline to 2.6 percent in 2026, reflecting the effects of softer labor markets and lower energy prices. Growth is expected to recover slightly in 2027 as trade flows stabilize and policy uncertainty decreases.
“With each passing year, the global economy has become less capable of generating growth and seemingly more resilient to policy uncertainty,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics. “But economic dynamism and resilience cannot diverge for long without fracturing public finance and credit markets. Over the coming years, the world economy is set to grow slower than it did in the troubled 1990s, while carrying record levels of public and private debt. To avert stagnation and joblessness, governments in emerging and advanced economies must aggressively liberalize private investment and trade, rein in public consumption, and invest in new technologies and education.”
The report also highlighted that developing economies need to strengthen their fiscal sustainability, which has been undermined by recent overlapping shocks, increasing development needs, and rising debt-servicing costs. A special-focus chapter in the report analyzed the use of fiscal rules by developing economies—mechanisms that set clear limits on government borrowing and spending to manage public finances more effectively.
According to the World Bank, such fiscal rules are generally associated with 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 more than half a century, restoring fiscal credibility has become an urgent priority,” said M. Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group. “Well-designed fiscal rules can help governments stabilize debt, rebuild policy buffers, and respond more effectively to shocks. But rules alone are not enough: credibility, enforcement, and political commitment ultimately determine whether fiscal rules deliver stability and growth.”
The report noted that more than half of developing economies now have at least one fiscal rule in place. These include limits on fiscal deficits, public debt, government expenditures, or revenue collection.
Developing economies that adopt fiscal rules typically record an improvement in their budget balance by 1.4 percentage points of GDP within five years, after accounting for interest payments and business cycle fluctuations. The adoption of fiscal rules also increases by 9 percentage points the likelihood of achieving a multi-year improvement in budget balances.
However, the report stressed that the long-term benefits of fiscal rules depend heavily on institutional strength, the economic environment in which they are introduced, and the design of the rules themselves. It emphasized that while fiscal rules can contribute to stability and growth, their success depends on consistent implementation and strong political will to enforce them.
