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Dear Colleagues,

We have just released the January 2025 edition of the Global Economic Prospects report. 

 

In a nutshell, global growth is expected to hold steady at a 2.7 percent in 2025-26, the same pace as in 2024, as inflation and interest rates decline gradually. 

Growth in emerging market and developing economies (EMDEs) is also expected to remain stable at about 4 percent over the next two years. 

Heightened policy uncertainty, adverse trade policy shifts, and geopolitical tensions represent key downside risks to the near-term outlook. 

Against this backdrop, EMDEs (Emerging and Developing Economies)—which fuel 60 percent of global growth—are projected to finish the first quarter of the 21st century with the weakest long-term growth outlook since 2000. 

Even as the global economy stabilizes in the next two years, these economies are expected to make slower progress in catching up with the income levels of advanced economies. 

In addition to the global and regional outlook chapters, this edition presents analytical chapters presenting our first systematic review of the performance of EMDEs and of low-income countries (LICs) in the first quarter of the 21st century—and assessing their prospects. 

I summarize the main messages of the report below (to download the full report, please use this link). Thank you for your interest in our products.

Best,

Ayhan

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Global Outlook. Global growth is stabilizing as inflation returns closer to targets and monetary easing supports activity in both advanced economies and EMDEs. This should give rise to a broad-based, moderate global expansion over 2025-26, at 2.7 percent per year, as trade and investment firm. However, growth prospects appear insufficient to offset the damage done to the global economy by several years of successive negative shocks, with particularly detrimental outcomes in the most vulnerable countries. From a longer-term perspective, catch-up toward advanced economy income levels has steadily weakened across EMDEs over the first quarter of the twenty-first century. Heightened policy uncertainty and adverse trade policy shifts represent key downside risks to the outlook. Other risks include escalating conflicts and geopolitical tensions, higher inflation, more extreme weather events related to climate change, and weaker growth in major economies. On the upside, faster progress on disinflation and stronger demand in key economies could result in greater-than-expected global activity. The subdued growth outlook and multiple headwinds underscore the need for decisive policy action at the global and national levels.

 

From Tailwinds to Headwinds: Emerging and Developing Economies in the Twenty-First Century. The first quarter of the twenty-first century has been transformative for EMDEs. These economies now account for about 45 percent of global GDP, up from 25 percent in 2000, a trend driven by robust collective growth in the three largest EMDEs—China, India, and Brazil (the EM3). Collectively, EMDEs have contributed about 60 percent of annual global growth since 2000, on average, double the share during the 1990s. Their ascendance was powered by swift global trade and financial integration, especially during the first decade of the century. Interdependence among these economies has also increased markedly. Today, nearly half of goods exports from EMDEs go to other EMDEs, compared to one-quarter in 2000. As cross-border linkages have strengthened, business cycles among EMDEs and between EMDEs and advanced economies have become more synchronized, and a distinct EMDE business cycle has emerged. Cross-border business cycle spillovers from the EM3 to other EMDEs are sizable, at about half of the magnitude of spillovers from the largest advanced economies (the United States, the euro area, and Japan). Yet EMDEs confront a host of headwinds at the turn of the second quarter of the century. Progress implementing structural reforms in many of these economies has stalled. Globally, protectionist measures and geopolitical fragmentation have risen sharply. High debt burdens, demographic shifts, and the rising costs of climate change weigh on economic prospects. A successful policy approach to accelerate growth and development should focus on boosting investment and productivity, navigating a difficult external environment, and enhancing macroeconomic stability.

 

Falling Graduation Prospects: Low-Income Countries in the Twenty-First Century (released in advance on December 12, 2024). Rapid growth underpinned by domestic reforms and a benign global environment allowed many LICs to attain middle-income status in the first decade of the twenty-first century. Since then, the rate at which LICs are graduating to middle-income status has slowed markedly. The prospects for today’s LICs appear much more challenging. In recent years, per capita growth has been anemic amid heightened levels of conflict and fragility and adverse global developments. Across a wide array of development metrics, today’s LICs are behind where LICs that since turned middle-income stood in 2000. They are also more susceptible to domestic shocks, including those related to climate change. Many LICs that graduated in the past underwent growth accelerations—extended periods of robust economic expansion, during which output became far more trade- and investment-intensive. These accelerations were generally preceded by reforms that tended to increase market orientation and channeled resources into rapid investment growth. To kick-start stronger growth, today’s LICs can harness large resource endowments to, among other things, supply the green transition, and find advantage in youthful and growing populations, untapped tourism potential, and regional trade integration. However, harnessing these factors and improving productivity hinges on engineering increased investment in human and physical capital, closing gender gaps, addressing fiscal risks, and improving governance. For LICs in fragile and conflict-affected situations, attaining greater peace and stability is paramount. LICs will also need international support to mobilize additional resources and foster institutions that can drive durable reforms. Throughout, policy makers should be guided by deep knowledge of country circumstances—there is no one-size-fits-all recipe for growth and graduation to middle-income status in LICs.

 

PS: For other periodical products by the Prospects Group, please see the Commodity Markets Outlook and the Global Monthly. For our recent work on long-term growth, see  Falling Long-Term Growth Prospects. For our study of debt challenges, see Global Waves of Debt: Causes and Consequences. We recently produced special reports on the causes of chronic fiscal weakness in the poorest economies,  Fiscal Vulnerabilities in Low-Income Countries, and on opportunities and risks confronting countries eligible for financing from the World Bank’s International Development Association (IDA),  The Great Reversal. We maintain databases on potential growth, fiscal space, informality, and inflation. For our other products, see Prospects Group.

 

M. Ayhan Kose

Deputy Chief Economist

and Director of Prospects Group

World Bank

T +1 (202) 473-8350

E  akose@worldbank.org

W ayhankose

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