177. The global economy not in good shape
A World Bank report indicates that 25% of developing countries are now poorer than in 2019, prior to COVID-19. It also notes that global growth has slowed since the pandemic, and the current rate is insufficient to reduce extreme poverty and generate jobs in the areas most needed.
It predicts that in the coming years, the global economy will grow more slowly than it did during the challenging 1990s, while also maintaining record-high levels of public and private debt.
The report indicated that economic growth in emerging markets and developing economies is projected to decline from 4.2% last year to 4% this year.
Global growth is expected to stay relatively stable over the next two years, decreasing slightly from 2.7% in 2025 to 2.6% in 2026, and then rising back to 2.7% in 2027. This marks a small upward revision from the forecast made in June.
The World Bank predicts China's growth will be 4.4% this year and 4.2% next year. These estimates are an improvement over last June's assessment but still indicate the slowest growth in 35 years and fall short of the earlier 4.9% forecast for 2025 and the 5% goal.
The bank stated that China was more resilient than anticipated, with a government spending surge boosting domestic consumer expenditure and export sales supported by rerouting goods to markets outside the US.
The report states that many of the one in four developing countries with lower average incomes than in 2019 have faced wars and famines, which have hindered their recovery from the pandemic. Although recent growth has improved, it has not been enough to recover from earlier setbacks.
The bank noted that global economic growth was proving more resilient than anticipated, particularly following the US economy's unexpectedly strong performance last year. However, progress is expected to be modest in 2026, as both developed and developing economies face challenges in advancing.
The US economy was projected to expand by 2.1% in 2025 and 2.2% in 2026, with upward revisions of 0.7 and 0.6 percentage points from the bank’s June forecast. Meanwhile, the euro area lagged, with growth of only 0.9% in 2025 and a forecast of 1.2% in 2026.
I find the basic reason the world economy will remain in bad shape is the increasingly trade split along geopolitical lines, with traditional alliances splintering further.
The US tariffs have also significantly slowed trade growth.
Secondly, global inflation may remain sticky due to trade barriers and labor supply shocks. Meanwhile, global public debt is approaching 100% of world GDP, severely limiting governments' ability to respond to new crises.
The ongoing tensions and conflicts in the Middle East and Eastern Europe persistently disrupt energy and food supplies. Major leaders at Davos 2026 warned that instability has become a structural element of the economy, not just a temporary issue.
The current picture is as follows - India leads with a projected 6.8% growth, China faces persistent deflationary pressure and a property crisis, and Europe struggles with high debt and stagnant manufacturing.
So, get ready to watch a global economy decline in 2026.