The global economy has proven surprisingly resilient in the face of escalating trade tensions and policy uncertainty over the past year, according to the World Bank’s latest Global Economic Prospects report. However, this strength is expected to fade, with global growth projected to edge down to 2.6 percent in 2026 as the effects of tariffs and fading support from temporary factors weigh on activity.
The report, released Tuesday, credits the resilience to several factors, including businesses stockpiling goods ahead of tariff implementations, a surge in artificial intelligence related investment, and the adaptability of supply chains. This stronger than expected performance capped a five year global recovery from the 2020 pandemic recession that is unmatched in six decades.
Yet, this aggregate strength masks a sharp and disappointing divergence. While nearly 90 percent of advanced economies have per capita incomes above pre pandemic levels, more than a quarter of emerging market and developing economies (EMDEs) are poorer than they were in 2019. This is particularly acute in low income countries and those affected by fragility and conflict.
Looking ahead, the World Bank forecasts that global growth will moderate as the temporary boost from inventory accumulation unwinds and the full impact of higher tariffs takes hold. Global trade growth is projected to slow markedly to 2.2 percent in 2026, down from an estimated 3.4 percent in 2025.
“First, the good news: the global economy has proved to be surprisingly shock proof,” said Indermit Gill, Chief Economist of the World Bank Group. “Yet a grimmer picture emerges if we take stock of the world economy after the first 25 years of this century. Global growth has unmistakably downshifted to a slower gear since the pandemic.”
The report highlights that the average effective U.S. tariff rate rose to about 17 percent by late 2025, the highest level since the 1930s. This has begun to filter through to consumer prices, although the impact has been somewhat muted by businesses absorbing costs and reorienting supply chains. U.S. goods imports, which surged on front loading, slowed notably in the second half of 2025.
Inflation is moderating in most countries, moving closer to central bank targets. Global inflation is expected to edge down to 2.6 percent in 2026. However, the outlook remains clouded by a high degree of uncertainty, with risks tilted to the downside. A further escalation of trade tensions or a sharp correction in financial markets could derail the modest recovery.
The World Bank warns that without stronger economic dynamism, many EMDEs will struggle to create enough jobs for their expanding working age populations. The report dedicates a chapter to the challenges faced by “frontier market” economies, a diverse group of countries with growing but limited access to global financial markets and another to the role of fiscal rules in rebuilding depleted fiscal space.
