Every World Bank report has a specific point at which the tone subtly changes from cautious to gloomy, and this year that point comes early. The bank now projects that global growth will drop from 2.9 percent in 2025 to 2.5 percent in 2026. By itself, that figure isn’t particularly striking. Beneath it, however, is something that economists appear to be more interested in than the headline number: employment.
What’s surprising people is how the labor market is framed in the report. Nearly all new jobs in developing economies are in low-productivity services, which are jobs that don’t increase pay or develop skills over time. It’s the kind of information that can be quickly skimmed over in a 300-page document, but it appears to be the topic that analysts are continuously bringing up in calls and notes this week.
The bank’s chief economist, Indermit Gill, doesn’t do much to soften it. For many developing countries, he writes, the 2020s will be a lost decade unless there is some sort of miracle. Since 2019, about half of them have not even been able to close the income gap with wealthier nations. For an organization that founded itself on convergence—the notion that less developed countries eventually catch up—that is a startling admission.
The Middle East conflict, which has increased energy costs and hampered shipping across the Strait of Hormuz, is partially to blame for the slowdown. The price of fertilizer alone is predicted to increase by up to 38% this year. It’s the kind of knock-on effect that seldom makes headlines but eventually appears in farm budgets and grocery bills throughout South Asia and Africa.
However, the structural aspects are more difficult to explain away with a single conflict. Since 2010, government debt in developing economies has almost doubled, from 40% of GDP to 70%. Increased debt typically drives up borrowing costs, creating a vicious cycle that is difficult to break without difficult reforms. Observing these debt dynamics, investors appear to be growing less convinced that there is political will to swiftly address them.
The report also discusses artificial intelligence, which it compares to a coin that is still spinning in midair. Along with regional trade and the energy transition, Gill describes it as one of three genuine sources of hope for the upcoming ten years. He is direct about the catch, though: less than 25% of the world’s data centers are located in developing nations, and about half of the world’s population speaks languages that are underrepresented in the data used to train these models. The irony that a technology marketed as a great equalizer might actually widen the very gap it’s meant to close is difficult to ignore.
Ajay Banga, president of the World Bank, describes the situation as a test of equilibrium: safeguarding people now without sacrificing future growth. Although significant, the bank’s offer of up to $100 billion over the next 15 months to support the most severely affected economies is unlikely to outweigh the potential consequences of a protracted conflict. Growth could drop as low as 1.3 percent worldwide in the bank’s worst-case scenario.
A downturn is not guaranteed by any of this. Forecasts change, ceasefires continue or end, and oil flows resume more frequently than markets anticipate. However, the labor data included in this report feels different from the typical growth-rate churn; rather than a single war or rate hike, it points to something slower-moving and more difficult to reverse. This time, economists appear to be more concerned about that than the topline figure.
