Long-Term Growth Outlook Weakens for First Time This Century

Developing economies, which contribute 60% of global growth, are confronting their weakest long-term growth projections since 2000, according to the World Bank’s latest Global Economic Prospects report. While the global economy is expected to stabilize, with a growth rate of 2.7% forecast for 2025 and 2026, the progress of developing nations in closing the income gap with advanced economies remains slow.

Read also: Eradicating Poverty for Half the World Could Take Over a Century, World Bank Warns

Over the next two years, developing economies are projected to maintain growth at around 4%. However, this pace falls short of pre-pandemic levels and is insufficient to alleviate poverty or achieve broader development goals.

Key Findings

The report provides a comprehensive review of developing economies’ performance during the first 25 years of the 21st century. It highlights three significant trends:

1. Declining Growth Rates: Growth in these economies fell from 5.9% in the 2000s to 3.5% in the 2020s, driven by faltering global integration and declining foreign direct investment (FDI). FDI inflows, as a percentage of GDP, are now half their early 2000s levels.

2. Widening Income Gap: With the exception of China and India, per capita income growth in developing nations has lagged by half a percentage point compared to wealthier economies since 2014.

3. Rising Challenges: High debt levels, sluggish investment, productivity declines, and escalating climate change costs are creating unprecedented hurdles.

Indermit Gill, Chief Economist at the World Bank, stated, “The next 25 years will be tougher for developing economies than the last. The forces that once propelled their rise have faded, replaced by high debt burdens and climate challenges. These nations must adopt domestic reforms to boost private investment, trade, and efficient use of resources.”

Growing Global Importance

Despite slower growth, developing economies now play a more significant role in global dynamics. They account for 45% of global GDP, up from 25% in 2000, and over 40% of their exports now go to other developing nations, double the share two decades ago.

Moreover, these economies contribute 40% of global remittances and serve as a critical source of capital flows and development assistance. Notably, growth in major developing economies such as China, India, and Brazil has a direct positive impact on other developing countries, albeit at a smaller scale than growth in advanced economies like the United States, Japan, and the euro area.

Policy Solutions for a Stronger Future

The report emphasizes that bold policies can help developing economies overcome obstacles and seize new opportunities. Strategic trade and investment partnerships, modernized infrastructure, and standardized customs processes are critical to fostering trade efficiency.

M. Ayhan Kose, the World Bank’s Deputy Chief Economist, urged nations to pursue reforms, stating, “To navigate uncertainties, developing economies must prioritize cross-border cooperation, sound macroeconomic policies, and investments in human and physical capital.”

Outlook

While the global economy could benefit from unexpected momentum in the United States or China, headwinds such as persistent inflation, trade tensions, and policy uncertainties remain significant risks. However, the World Bank report argues that with the right strategies, developing economies can not only weather these challenges but also position themselves as leaders in addressing infrastructure gaps, driving climate solutions, and fostering inclusive development.