World Bank Declares 2020s a Lost Decade as Global Growth Slows to 2.5 Percent
The World Bank has downgraded its global growth forecast to 2.5 percent for 2026, warning that the 2020s are on track to become a lost decade for developing economies unless a dramatic turnaround materializes. The assessment, delivered in the bank’s June Global Economic Prospects report, represents the weakest projected growth pace outside of outright recession in nearly two decades and marks a sharp downgrade from the 2.7 percent expansion recorded in 2025. Two-thirds of all countries had their forecasts cut in the half-yearly update, a breadth of downward revision that the bank said reflects the compounding impact of successive crises with no recovery window between them.
The proximate trigger is the conflict in the Middle East, which has disrupted shipping through the Strait of Hormuz, pushed Brent crude to an average of $94 per barrel, and reignited inflationary pressures across developing regions just as many central banks had begun to ease monetary policy. Fertilizer prices are expected to jump as much as 38 percent this year, threatening food security in import-dependent nations. The World Bank warned that in a severe downside scenario involving prolonged energy disruption and financial stress, global growth could collapse to just 1.3 percent.
A Decade of Compounding Crises
The lost decade thesis is not the product of any single shock. The World Bank’s chief economist, Indermit Gill, wrote in the report’s foreword that the COVID-19 pandemic, Russia’s invasion of Ukraine, the sharpest global inflation surge in a generation, a historic rise in interest rates, and now a new Middle East conflict have struck in such rapid succession that developing economies have had almost no room to recover between blows. Government debt across the developing world has surged to all-time highs, reaching 70 percent of GDP on aggregate, up from 40 percent in 2010. Private investment growth in the 2020s has more than halved relative to the previous decade.
“Barring a miracle, the 2020s will prove to be what their ominous opening foreshadowed: a lost decade,” Gill wrote. He added that for light at the end of the tunnel, one would have to look to the 2030s, and even that is far from certain. Among the 24 poorest economies on earth, 19 still depend on foreign assistance just to feed their populations, at a moment when, as Gill noted, the world has seldom been in a less charitable mood. The bank is making up to $100 billion available over the next 15 months for the countries worst affected by the knock-on effects of the war.
The Middle East Shock and Energy Channel
The Middle East and North Africa region has absorbed the most direct hit. Growth there is forecast to tumble from 3.9 percent in 2025 to just 1.6 percent in 2026, a downward revision of 2.7 percentage points from the bank’s January forecast. Damage to critical energy infrastructure, disruptions to shipping through key waterways, and the human toll of active hostilities have compounded into a regional economic crisis with spillover effects spanning every developing region on the planet. Even if the disruption to oil flows abates next month, the World Bank expects global inflation to rise to 4 percent in 2026, up significantly from 3.3 percent in 2025.
The energy price surge is transmitting through multiple channels. Higher fertilizer costs squeeze agricultural productivity in import-dependent economies, while elevated fuel prices widen current account deficits and drain foreign exchange reserves. World Bank president Ajay Banga said the institution is providing liquidity where it is needed now and stands ready with additional financing, guarantees, and private-sector solutions if pressures deepen. “A renewed escalation of hostilities or more prolonged disruptions to commodity flows could further raise commodity prices, intensify inflationary pressures and food insecurity, trigger financial stress and lower growth,” the report stated.
The Debt Trap and the AI Divide
Beyond the immediate conflict-driven shock, the report sounds a warning about what it calls the rising challenge of government indebtedness in developing countries. Since 2010, aggregate government debt in developing nations has climbed from 40 percent of GDP to 70 percent, and the bank noted that the higher the pre-existing debt level, the more interest rates tend to rise when global conditions tighten. Research cited by the bank found that the G77 group of developing countries now spends $8 trillion a year servicing their debts, equivalent to 35 percent of government spending. That fiscal drain leaves governments with little room to cushion their populations from successive shocks.
Gill identified three potential engines of hope for developing economies in the coming decade: increased regional trade, the clean energy revolution, and artificial intelligence. But he warned that the benefits of AI are heavily skewed toward the rich world, with less than a quarter of data centres currently sited in developing economies, while the languages of roughly half the world’s people remain poorly represented in the data that trains the models. “Unless such gaps are closed, the AI revolution could widen rather than narrow the gap between rich and poor countries,” he wrote. The structural transformation that developing economies need is becoming harder to achieve, not easier, at precisely the moment when the margin for policy error has narrowed to its thinnest point in a generation.
What Comes Next
The World Bank’s downside scenario, in which global growth falls to 1.3 percent, is not a tail risk that policymakers can afford to dismiss. The ceasefire between the United States and Iran appears increasingly fragile, and any renewed escalation would compound the energy, food, and debt pressures already bearing down on developing economies. For advanced economies, the report implies a world of persistently higher inflation, stickier interest rates, and weaker external demand from emerging markets that have historically been a growth engine for Western exporters. The 2020s may yet avoid the lost decade label, but only if the international community mobilizes financing, debt relief, and trade cooperation at a scale that currently looks politically improbable.
For now, the data speaks clearly. By the end of this year, one quarter of all developing economies, one third of low-income economies, and half of fragile and conflict-affected states will be poorer than they were on the eve of the pandemic. The income gap between developing and advanced economies has widened for nearly half of all developing countries since 2019. Barring a miracle, as Gill wrote, the 2020s will be remembered not as a decade of convergence but as a decade of compounding loss.
