Durrant Pate/ Contributor

The global economy is forecasted by the World Bank to grow by 2.7 per cent in 2025 and 2026, matching the pace of 2024 as inflation and interest rates gradually decline. 

Growth in developing economies is expected to remain steady at around four per cent, which is weaker than pre-pandemic levels and insufficient to significantly reduce poverty or achieve broader development goals. The World Bank is projecting that developing economies, which drive 60 per cent of global growth should end the first quarter of the 21st century with their weakest long-term growth outlook since 2000.

The World Bank’s latest Global Economic Prospects report highlights the challenges and opportunities for these, where despite global economic stabilisation over the next two years, these economies are expected to lag in catching up with advanced economies’ income levels. 

The report highlights that developing economies experienced rapid growth in the early 2000s, but progress slowed after the 2008-09 Global Financial Crisis. 

Developing countries hit by contracting FDIs 

Foreign direct investment (FDI) inflows into developing economies have halved since the early 2000s and new global trade restrictions in 2024, were five times the 2010-19 average. Consequently, overall economic growth has declined from 5.9 per cent in the 2000s to 3.5 per cent in the 2020s.

World Bank Group’s chief economist, Indermit Gill cites that developing economies face significant challenges, including high debt, weak investment, low productivity growth, and rising climate change costs. He emphasised the need for domestic reforms to boost private investment, deepen trade relations, and improve the use of capital, talent, and energy.

Developing economies now account for about 45 per cent of global gross domestic product (GDP), up from 25 per cent in 2000, and their interdependence has grown. They are crucial for global capital flows, remittances, and development assistance.

However, their growth remains closely tied to the performance of major advanced economies like the United States, the euro area, and Japan. World Bank’s deputy chief economist, M. Ayhan Kose is pointing to the importance of bold policies to enhance cross-border cooperation, strategic trade, and investment partnerships. 

This is in addition to modernising infrastructure and standardising customs processes, which is critical for improving trade efficiency.

Clear and present danger

The report warns that developing economies could face serious headwinds, including high global policy uncertainty, rising trade tensions, and persistent inflation. However, there are opportunities for improvement through infrastructure development, climate transition, and human capital enhancement. 

Strengthening global trade governance with the support of multilateral institutions is also essential, the report emphasised.