The global economy is experiencing a significant slowdown, projected to grow at its slowest pace since the 2008 financial crisis, excluding periods of outright global recession. Escalating trade tensions and pervasive policy uncertainty are the primary drivers of this deceleration, impacting nearly 70% of all economies across all income levels and geographic regions. The World Bank’s Global Economic Prospects report forecasts a 2.3% growth rate for 2025, a substantial downward revision from initial projections. While a global recession is not anticipated, the current trajectory suggests that the average growth rate for the first seven years of the 2020s will be the lowest since the 1960s, underscoring the severity of the present economic climate.
Developing economies outside of Asia are facing particularly acute challenges, with growth rates stagnating and described as a “development-free zone.” This predicament reflects a broader, multi-decade trend of decelerating growth in these regions. Growth rates have fallen from an average of 6% annually in the 2000s to 5% in the 2010s, and are now projected to be below 4% in the 2020s. This decline mirrors a similar slowdown in global trade and investment growth, coupled with a concerning rise in debt levels. The projected growth for developing economies in 2025 is 3.8%, over a percentage point lower than the average of the previous decade, and expected to rise only marginally to 3.9% in 2026 and 2027. Low-income countries are also facing downward revisions in growth forecasts, exacerbating the challenges of poverty reduction and development.
The slowdown in economic growth has significant implications for developing economies, hindering their efforts to create jobs, alleviate poverty, and close the income gap with advanced economies. The projected per capita income growth for these nations in 2025 is 2.9%, considerably below the average observed between 2000 and 2019. Even if developing economies, excluding China, manage to sustain a 4% GDP growth rate, as projected for 2027, it would take approximately two decades for them to regain their pre-pandemic economic trajectory. This protracted recovery period underscores the long-term consequences of the current global economic downturn and the need for effective policy interventions.
The report highlights the potential for a faster recovery if major economies can successfully de-escalate trade tensions, thereby reducing policy uncertainty and financial volatility. Analysis suggests that resolving current trade disputes through agreements that halve tariffs from their late-May levels could boost global growth by 0.2 percentage points on average over 2025 and 2026. This underlines the significant economic benefits that could be achieved through international cooperation and a move towards greater trade liberalization.
Developing economies are urged to adopt proactive strategies to mitigate the negative impacts of rising trade barriers. These strategies include pursuing broader liberalization through strategic trade and investment partnerships, diversifying trade relationships, and leveraging regional trade agreements. Strengthening domestic resource mobilization, prioritizing fiscal spending towards vulnerable populations, and enhancing fiscal frameworks are crucial for navigating economic uncertainty and ensuring resources are directed towards critical social safety nets.
To stimulate economic growth, developing nations must focus on improving their business environments and promoting productive employment. Investing in skills development and creating efficient labor market mechanisms that match workers with suitable jobs are vital for achieving sustainable and inclusive growth. The report emphasizes the importance of global collaboration in supporting vulnerable developing economies, including through multilateral interventions, concessional financing, and emergency relief for countries facing conflict. This collaborative approach is essential to address the complex challenges posed by the current global economic landscape and promote a more stable and prosperous future.
