Global economic growth is set to slow to 2.5% this year, marking its weakest pace since the Covid-19 pandemic, as geopolitical tensions and rising inflation continue to weigh on the outlook, according to the World Bank Group.
In its latest Global Economic Prospects report, the Washington-based institution downgraded growth forecasts for two-thirds of countries, warning that higher borrowing costs and disruptions linked to conflict in the Middle East are threatening to drag on global activity.
The World Bank estimates global growth at 2.7% in 2025, with a further slowdown expected this year.
Inflation is projected to rise to 4% in 2026, up from 3.3% in 2025, as energy and commodity markets remain vulnerable to supply shocks.
Average fertiliser prices are also forecast to climb sharply, with increases of up to 38% expected due to disruptions in supply chains linked to the Strait of Hormuz and broader energy market instability.
The World Bank warned that developing economies, excluding major Asian growth engines such as India and China, risk a prolonged period of weak convergence with advanced economies.
It described the 2020s as potentially a “lost decade” for much of the developing world if structural constraints persist.
The report noted: "Amid one of the densest clusters of global shocks since the 1970s, nearly one out of every two developing economies has failed since 2019 to advance on the most rudimentary promise of development: narrowing the income gap with the world’s most prosperous economies.
“For light at the end of the tunnel, you’d have to look to the 2030s.”
World Bank President Ajay Banga noted the need for targeted support to vulnerable economies, stating:
"We are helping developing economies confront the Middle East shock by providing immediate liquidity—up to $25 billion through existing instruments—to help them cope. We are bringing additional resources to bear by reprioritising projects already in the pipeline.
“And we stand ready to do more if needed: if the conflict and economic fallout persist, World Bank Group financing could be increased to $80 to $100 billion over 15 months.”
AI Emerges as a Key Growth Driver
Beyond the immediate slowdown, the Bank pointed to structural forces shaping long-term growth, including regional trade integration, the clean energy transition and artificial intelligence.
However, it cautioned that artificial intelligence (AI) benefits remain unevenly distributed, with advanced economies capturing a disproportionate share of productivity gains.
A separate World Bank report on Poland highlighted this divergence, estimating that artificial intelligence could lift the country’s real GDP by between 1.3% and 12.1% by 2035, depending on the speed of adoption and policy support.
The report found that only 8% of Polish firms currently use AI, suggesting significant room for productivity gains if investment and labour market adaptation accelerate.
However, it warned that without coordinated investment in skills, infrastructure and regulation, AI could widen inequality both within and between countries, particularly as gains tend to accrue disproportionately to capital owners.
The World Bank also flagged rising government indebtedness across developing economies, which has climbed from 40% of GDP in 2010 to around 70% today, limiting fiscal flexibility in the face of economic shocks.
While the institution sees potential upside from AI and structural reforms, it warned that the balance of risks remains tilted to the downside unless policy action and investment accelerate across both advanced and developing economies.
