The World Bank has issued a stark warning regarding the future of developing economies, predicting the weakest long-term growth outlook since 2000.
By the end of this year, growth in developing economies is expected to remain at around 4%, a decline from their historical performance. While this is still higher than the anticipated global growth rate of 2.7% in 2025 and 2026, the rate marks a significant slowdown when compared to the rapid expansion seen in the first decade of the 2000s.
The World Bank’s report highlights several factors contributing to this dimming outlook. Weak foreign direct investment (FDI) is one of the primary challenges, with FDI inflows as a share of GDP in developing economies now half the level seen in the early 2000s. The report also underscores that global trade restrictions have significantly increased, now five times the average level seen from 2010 to 2019, compounded by growing international trade tensions.
Additionally, developing economies are facing mounting concerns about climate change. Rising costs associated with climate impact, high debt burdens, and weak investment are all major hurdles hindering growth. The World Bank also pointed to the risk of persistent inflation, which could delay interest rate cuts and further deter investment.
While developing economies have seen an increasing level of interdependence, with over 40% of their goods now being traded with other developing economies (double the share in 2000), this interconnectedness also means that stagnation in one region can have far-reaching consequences. Furthermore, developing economies now account for 40% of global remittances, up from 30% at the start of the century.
The World Bank emphasized that, despite ongoing growth, it will not be enough to address poverty or meet sustainable development goals. By 2030, an estimated 622 million people are expected to remain in extreme poverty, while a similar number will continue to suffer from hunger and malnutrition.
In sum, the World Bank forecasts a challenging path ahead for developing nations, with fewer supporting forces than in the past and an array of difficult economic pressures. Indermit Gill, the World Bank’s Chief Economist, stated, “The next 25 years will be a tougher slog for developing economies than the last 25,” highlighting the significant and persistent obstacles these economies will face.
