Saturday, 18 January, 2025
Developing economies, responsible for 60% of global growth, are projected to close the first quarter of the 21st century with their weakest long-term growth outlook since 2000, according to the World Bank's latest Global Economic Prospects report.
While the global economy is expected to stabilize over the next two years, developing economies are likely to lag in narrowing the income gap with advanced economies, stated a press release.
The global economy is forecasted to grow by 2.7% in 2025 and 2026, maintaining the same pace as in 2024, supported by declining inflation and interest rates. Growth in developing economies is anticipated to remain steady at around 4% during this period.
However, this performance falls short of pre-pandemic levels and is insufficient to significantly reduce poverty or achieve broader development objectives.
This report marks the World Bank's first systematic evaluation of developing economies' performance in the 21st century. It highlights that during the early 2000s, these economies experienced their fastest growth since the 1970s, but momentum waned after the 2008-09 Global Financial Crisis.
Global economic integration has stalled. Foreign direct investment (FDI) inflows into developing economies, as a share of GDP, have halved compared to the early 2000s. In 2024 alone, new trade restrictions were five times higher than the average recorded between 2010 and 2019.
Consequently, economic growth has progressively declined—from 5.9% in the 2000s to 5.1% in the 2010s and 3.5% in the 2020s. Since 2014, excluding China and India, per capita income growth in developing economies has been half a percentage point lower than in advanced economies, widening the wealth gap.
"The next 25 years will be tougher for developing economies than the last," said Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank.
Gill emphasized that many of the forces that previously propelled growth—such as low debt levels and strong global trade—have dissipated. In their place, economies now face significant challenges, including high debt burdens, sluggish investment and productivity, and mounting climate-related costs.
"To overcome these obstacles, developing economies need a new playbook focused on domestic reforms to accelerate private investment, deepen trade ties, and optimize the use of capital, talent, and energy," he added.
Despite these challenges, developing economies have become more critical to the global economy. They now contribute 45% of global GDP, up from 25% in 2000, and their interdependence has grown. Over 40% of their goods exports now go to other developing economies, double the share recorded in 2000.
These economies are also major drivers of global capital flows, remittances, and development aid. Between 2019 and 2023, developing economies accounted for 40% of global remittances, up from 30% in the early 2000s.
As a result, their influence on other developing economies has grown. For instance, a 1% rise in the GDP of China, India, or Brazil tends to boost GDP in other developing economies by nearly 2% over three years.
However, this influence remains less significant than that of advanced economies. Growth in the United States, the Eurozone, and Japan continues to have a more substantial impact on the welfare of developing nations.
"In an era defined by policy uncertainty and trade tensions, developing economies must adopt bold, far-reaching policies to capitalize on cross-border opportunities," said M. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank.
He recommended that these economies strengthen trade and investment partnerships with other developing nations, modernize transport infrastructure, streamline customs processes, and implement sound macroeconomic policies to weather global uncertainties.
While headwinds such as high global policy uncertainty, rising trade tensions, and persistent inflation could hamper progress, the report suggests that developing economies can transform these challenges into opportunities.
Addressing infrastructure deficits, accelerating climate transitions, and improving human capital are critical measures that can simultaneously enhance growth prospects and achieve broader development goals.
To ensure long-term stability, all countries must collaborate to strengthen global trade governance with the support of multilateral institutions.
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Developing economies, responsible for 60% of global growth, are projected to close the first quarter of the 21st century with their weakest long-term growth outlook since 2000, according to the World Bank's latest Global Economic Prospects report.
While the global economy is expected to stabilize over the next two years, developing economies are likely to lag in narrowing the income gap with advanced economies, stated a press release.
The global economy is forecasted to grow by 2.7% in 2025 and 2026, maintaining the same pace as in 2024, supported by declining inflation and interest rates. Growth in developing economies is anticipated to remain steady at around 4% during this period.
However, this performance falls short of pre-pandemic levels and is insufficient to significantly reduce poverty or achieve broader development objectives.
This report marks the World Bank's first systematic evaluation of developing economies' performance in the 21st century. It highlights that during the early 2000s, these economies experienced their fastest growth since the 1970s, but momentum waned after the 2008-09 Global Financial Crisis.
Global economic integration has stalled. Foreign direct investment (FDI) inflows into developing economies, as a share of GDP, have halved compared to the early 2000s. In 2024 alone, new trade restrictions were five times higher than the average recorded between 2010 and 2019.
Consequently, economic growth has progressively declined—from 5.9% in the 2000s to 5.1% in the 2010s and 3.5% in the 2020s. Since 2014, excluding China and India, per capita income growth in developing economies has been half a percentage point lower than in advanced economies, widening the wealth gap.
"The next 25 years will be tougher for developing economies than the last," said Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank.
Gill emphasized that many of the forces that previously propelled growth—such as low debt levels and strong global trade—have dissipated. In their place, economies now face significant challenges, including high debt burdens, sluggish investment and productivity, and mounting climate-related costs.
"To overcome these obstacles, developing economies need a new playbook focused on domestic reforms to accelerate private investment, deepen trade ties, and optimize the use of capital, talent, and energy," he added.
Despite these challenges, developing economies have become more critical to the global economy. They now contribute 45% of global GDP, up from 25% in 2000, and their interdependence has grown. Over 40% of their goods exports now go to other developing economies, double the share recorded in 2000.
These economies are also major drivers of global capital flows, remittances, and development aid. Between 2019 and 2023, developing economies accounted for 40% of global remittances, up from 30% in the early 2000s.
As a result, their influence on other developing economies has grown. For instance, a 1% rise in the GDP of China, India, or Brazil tends to boost GDP in other developing economies by nearly 2% over three years.
However, this influence remains less significant than that of advanced economies. Growth in the United States, the Eurozone, and Japan continues to have a more substantial impact on the welfare of developing nations.
"In an era defined by policy uncertainty and trade tensions, developing economies must adopt bold, far-reaching policies to capitalize on cross-border opportunities," said M. Ayhan Kose, Deputy Chief Economist and Director of the Prospects Group at the World Bank.
He recommended that these economies strengthen trade and investment partnerships with other developing nations, modernize transport infrastructure, streamline customs processes, and implement sound macroeconomic policies to weather global uncertainties.
While headwinds such as high global policy uncertainty, rising trade tensions, and persistent inflation could hamper progress, the report suggests that developing economies can transform these challenges into opportunities.
Addressing infrastructure deficits, accelerating climate transitions, and improving human capital are critical measures that can simultaneously enhance growth prospects and achieve broader development goals.
To ensure long-term stability, all countries must collaborate to strengthen global trade governance with the support of multilateral institutions.
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