The global economy is showing greater resilience than previously expected despite ongoing trade tensions and policy uncertainty, the World Bank has said in its latest Global Economic Prospects report.

Global growth is projected to remain broadly stable over the next two years, easing to 2.6 per cent in 2026 before inching up to 2.7 per cent in 2027. Both figures represent an upward revision from the Bank’s June forecast.

The improved outlook is driven largely by stronger-than-expected performance in major economies, particularly the United States, which accounts for nearly two-thirds of the upward revision to the 2026 growth forecast.

Even so, the report warns that if current projections hold, the 2020s will be the weakest decade for global growth since the 1960s.

Slow growth is also deepening global inequality. By the end of 2025, almost all advanced economies had restored per-capita incomes above pre-pandemic levels. In contrast, about one-quarter of developing economies remained poorer than they were in 2019.

Growth in 2025 was buoyed by a surge in trade ahead of anticipated policy changes and rapid adjustments in global supply chains. These temporary supports are expected to fade in 2026 as trade activity and domestic demand weaken. However, easing global financial conditions and fiscal expansion in several large economies should help soften the slowdown.

Global inflation is forecast to decline to 2.6 per cent in 2026, reflecting softer labour markets and lower energy prices. Growth is expected to pick up again in 2027 as trade patterns adjust and policy uncertainty eases.

“With each passing year, the global economy has become less capable of generating growth, even as it appears more resilient to policy uncertainty,” said Indermit Gill, the World Bank Group’s Chief Economist. He warned that prolonged weak growth, combined with record levels of public and private debt, risks undermining public finances and credit markets.

“Without decisive reforms, the world economy is set to grow more slowly than it did even in the troubled 1990s,” Gill said, urging governments to liberalise trade and private investment, curb unproductive public spending, and invest in technology and education to avoid stagnation and rising joblessness.

In developing economies, growth is expected to slow from 4.2 per cent in 2025 to 4 per cent in 2026, before edging up to 4.1 per cent in 2027. The recovery is expected to be supported by easing trade tensions, stabilising commodity prices, improving financial conditions and stronger investment flows.

Low-income countries are projected to grow faster, averaging 5.6 per cent in 2026–27, driven by firmer domestic demand, recovering exports and moderating inflation. Even so, the report says this will not be enough to close the income gap with advanced economies.

Per-capita income growth in developing economies is projected at just 3 per cent in 2026—about one percentage point below its average between 2000 and 2019. At that pace, incomes in developing economies will reach only about 12 per cent of advanced-economy levels.

The slow pace of growth could intensify the employment challenge in developing countries, where an estimated 1.2 billion young people will enter the labour force over the next decade.

The World Bank says addressing this challenge will require a broad policy push focused on improving infrastructure, digital capacity and human capital; strengthening the business environment through clearer and more credible policies; and mobilising private capital to support investment.

The report also highlights the need for developing economies to restore fiscal sustainability after years of overlapping shocks, rising development needs and growing debt-servicing costs. A special-focus chapter examines the use of fiscal rules—formal limits on government borrowing and spending—as a tool for improving public finance management.

“With public debt in emerging and developing economies at its highest level in more than 50 years, restoring fiscal credibility is now urgent,” said M. Ayhan Kose, the World Bank Group’s Deputy Chief Economist.

He noted that well-designed fiscal rules can help stabilise debt, rebuild policy buffers and strengthen resilience to shocks, but only if they are credibly enforced and backed by strong political commitment.

More than half of developing economies now operate at least one fiscal rule, covering areas such as budget deficits, public debt, government spending or revenue.

Countries that adopt such rules typically see their budget balances improve by about 1.4 percentage points of GDP within five years, once cyclical factors are taken into account.

Fiscal rules also raise the likelihood of sustained improvements in public finances, although their long-term effectiveness depends heavily on institutional strength, economic conditions and sound design, the report concludes.