ASIATODAY.ID, WASHINGTON – The global economy is showing unexpected resilience amid historic trade tensions and policy uncertainty—but beneath the surface, structural fragilities and rising fiscal risks are intensifying, the World Bank warns.
In its Global Economic Prospects report released on January 13, 2026, the World Bank projects global growth to remain broadly stable, easing to 2.6% in 2026 before edging up to 2.7% in 2027, an upward revision from its June forecast.
The improvement reflects stronger-than-expected performance in several major economies, particularly the United States, which accounts for nearly two-thirds of the upgrade to the 2026 outlook.
Yet the Bank cautions that resilience should not be mistaken for strength.
If current projections hold, the 2020s are on track to become the weakest decade for global growth since the 1960s. The slowdown is deepening global inequality: by the end of 2025, almost all advanced economies had surpassed their 2019 per capita income levels, while one in four developing economies remained poorer than before the pandemic.
Trade Boosts Fade, Structural Pressures Mount
Growth in 2025 was supported by a surge in global trade ahead of anticipated policy changes and rapid adjustments in supply chains. These temporary tailwinds are expected to fade in 2026 as trade momentum slows and domestic demand weakens. Easing financial conditions and fiscal expansion in several large economies may help cushion the slowdown, but risks remain elevated.
Global inflation is projected to ease to 2.6% in 2026, driven by softer labor markets and lower energy prices. Growth is expected to pick up modestly in 2027 as trade flows adjust and policy uncertainty recedes.
“With each passing year, the global economy has become less capable of generating growth—and seemingly more resilient to policy uncertainty,” said Indermit Gill, the World Bank Group’s Chief Economist on January 13, 2026.
“But economic dynamism and resilience cannot diverge for long without fracturing public finances and credit markets.”
Gill warned that the world economy is set to grow more slowly than during the troubled 1990s, while carrying record levels of public and private debt—a combination that heightens the risk of stagnation and joblessness.
Developing Economies Face a Jobs and Income Trap
Growth in developing economies is expected to slow to 4% in 2026, down from 4.2% in 2025, before edging up to 4.1% in 2027. Low-income countries are projected to perform better, with average growth of 5.6% over 2026–27, supported by firming domestic demand and recovering exports.
Still, this will not be enough to close the income gap. Per capita income growth in developing economies is projected at 3% in 2026, about one percentage point below its pre-pandemic average. At that pace, per capita incomes in developing economies will reach only 12% of advanced-economy levels.
These trends threaten to intensify the employment challenge, as 1.2 billion young people in developing economies are expected to enter the labor force over the next decade.
Fiscal Rules: Discipline or Danger?
Against this backdrop, the World Bank devotes a special-focus chapter to fiscal rules—mechanisms that cap government borrowing, spending, or deficits. While such rules are often linked to stronger growth, higher private investment, and greater resilience to shocks, the report delivers a clear warning: fiscal rules are not inherently safe.
More than half of developing economies now operate under at least one fiscal rule. On average, countries that adopt fiscal rules see their budget balance improve by 1.4 percentage points of GDP after five years, once interest payments and business-cycle effects are accounted for. The likelihood of sustained, multi-year fiscal improvement also rises by 9 percentage points.
However, the World Bank stresses that the benefits are highly conditional.
“The medium- and long-term impact of fiscal rules depends critically on institutional strength, the economic environment in which the rules are introduced, and how they are designed and enforced,” the report finds.
In countries with weak governance or limited political commitment, fiscal rules risk becoming symbolic constraints—or worse, sources of instability.
“With public debt in emerging and developing economies at its highest level in more than half a century, restoring fiscal credibility has become urgent,” said M. Ayhan Kose, the World Bank Group’s Deputy Chief Economist.
“Well-designed fiscal rules can help stabilize debt, but rules alone are not enough.”
Uneven Regional Outlook
The report highlights stark regional divergences:
– East Asia and Pacific: Growth is expected to slow to 4.4% in 2026 and 4.3% in 2027.
– Europe and Central Asia: Growth is forecast to hold at 2.4% in 2026, rising to 2.7% in 2027.
– Latin America and the Caribbean: Growth is projected at 2.3% in 2026, firming to 2.6% in 2027.
– Middle East, North Africa, Afghanistan, and Pakistan: Growth is expected to rise to 3.6% in 2026 and 3.9% in 2027.
– South Asia: Growth is projected to ease to 6.2% in 2026, before recovering to 6.5% in 2027.
– Sub-Saharan Africa: Growth is expected to strengthen to 4.3% in 2026 and 4.5% in 2027.
A Stark Message
The World Bank’s message is unequivocal: in a fragile global economy, fiscal discipline can support stability—but poorly designed or weakly enforced rules can amplify risks.
As growth slows, debt rises, and inequality widens, the line between resilience and fragility is growing thinner. For policymakers, the challenge is no longer whether to adopt fiscal rules—but whether they can make them credible, flexible, and fit for an increasingly unstable global economy. (AT Network)
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