Weak investment and climate change threaten growth in developing economies after a period of strong expansion.
By the end of this year, developing economies are expected to record the weakest long-term growth outlook since 2000, said the World Bank on Thursday.
In this case, developing economies include all those that are not classified as advanced economies.
Growth in these territories will hold steady at about 4% over the next two years, according to the World Bank’s latest report.
When compared to global growth – predicted at 2.7% in both 2025 and 2026 – developing nations seem to be overperforming.
Even so, their progress is still slowing when compared with their own historical levels of growth.
In the period from 2000 to 2010, the World Bank noted that developing economies grew at the fastest rate since the 1970s.
The financial crash of 2008-9 then stalled this expansion, hindering trade, investment and the economic integration of nations.
Foreign direct investment (FDI) inflows into developing economies – as a share of GDP – are now at about half the level of the early 2000s, said the World Bank.
In 2024, the report added that new global trade restrictions were five times the average from 2010 to 2019.
Given the imminent arrival of president-elect Donald Trump to the White House, it’s likely that international trade tensions are also set to grow in the coming years.
The Republican leader has referred to “tariff” as “the most beautiful word in the dictionary” – and has threatened levies on overseas goods arriving from nations like China and Mexico.
More challenges ahead
The World Bank warned on Thursday that the lacklustre growth in developing nations will be insufficient to meaningfully tackle poverty and hit development goals.
By 2030, 622 million people will remain in extreme poverty, the group estimates. Hunger and malnutrition will affect around the same number.
Developing economies have also grown more interdependent, meaning that stalling growth has wide-reaching effects.
More than 40% of goods from these territories go to other developing economies, double the share in 2000.
Between 2019 and 2023, they also accounted for 40% of global remittances – up from 30% in the first decade of the century.
Looking ahead, developing economies will nonetheless face more significant hurdles to expansion, said the World Bank.
“The next 25 years will be a tougher slog for developing economies than the last 25,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President for Development Economics.
“Most of the forces that once aided their rise have dissipated. In their place have come daunting headwinds: high debt burdens, weak investment and productivity growth, and the rising costs of climate change,” he added.
On top of this, the World Bank highlighted the threat of persistent inflation, which could delay cuts to interest rates and therefore slow investment.
Reasons to be hopeful
Thursday’s report outlined means to improve growth prospects, notably suggesting that trade could be boosted by improving transport infrastructure and standardising customs processes.
A focus should also be placed on increasing investment and unlocking the potential of workforces – said the World Bank.
One way to do this would be to boost the labour force participation of women.
On a hopeful note, the report also suggested that the global economy may do better than expected, particularly if the US and China can push ahead with growth.
China’s economy is currently facing major challenges as a property crisis and weak consumer demand dents economic expansion.
Further stimulus measures could help to turn this situation around, said the World Bank.
Spillovers from strong US growth, which remains a possibility, could be “especially pronounced”, added the report.
