In News:

The World Bank has released its Global Economic Prospects (GEP) report for 2025, a flagship biannual publication analyzing trends and projections in the global economy, with a focus on emerging markets and developing economies (EMDEs). The report highlights economic growth forecasts, trade dynamics, and the challenges and opportunities shaping the global economic landscape.

Global Economic Outlook

• The world economy is projected to expand at a steady yet subdued rate of 2.7% in both 2025 and 2026, maintaining the pace of 2024.
• Inflation, which peaked above 8% in recent years, is expected to stabilize at an average rate of 2.7% in 2025 and 2026, aligning with central bank targets.
• Despite growth, the global economy remains 0.4 percentage points below the 2010-2019 average, raising concerns about its ability to tackle poverty effectively.

Challenges and Risks

• Trade Restrictions: New trade restrictions imposed in 2024 were five times higher than the 2010-19 average, contributing to a slowdown in global trade and economic growth.
• Rising Protectionism: Increased fragmentation in global trade policies is limiting exports and hampering economic integration.
• Policy Uncertainty: Adverse policy shifts, sluggish progress in reducing inflation, and weaker performance in major economies pose downside risks to global recovery.
• Debt and Investment Concerns: Developing economies are experiencing sluggish investment growth and high debt levels, exacerbated by climate change-related costs.

Emerging Markets and Developing Economies (EMDEs)

• EMDEs have significantly evolved since 2000, now contributing about 45% of global GDP, compared to 25% at the start of the century.
• The three largest EMDEs—India, China, and Brazil—have accounted for approximately 60% of annual global growth over the past two decades.
• Growth in low- and middle-income developing countries is expected at 4.1% in 2025 and 4% in 2026, with a notable slowdown compared to the early 2000s.
• Low-income countries are projected to rebound to 5.7% in 2025 and 5.9% in 2026, aided by easing conflicts in some regions.
• The world's poorest nations, with annual per capita incomes below USD 1,145, recorded growth of 3.6% in 2024, impacted by conflicts in regions like Gaza and Sudan, alongside lingering effects of COVID-19 and geopolitical tensions.

India-Specific Highlights

• Fastest-Growing Major Economy: India is expected to maintain its position as the world’s fastest-growing major economy, with a projected growth rate of 6.7% in both 2025 and 2026.
• Sectoral Growth: The services sector will remain robust, while manufacturing activity is expected to strengthen.
• Investment Growth: Supported by rising private investment, improved corporate balance sheets, and favorable financing conditions, investment growth in India is expected to remain steady.
• Key Growth Drivers:
  • Infrastructure development under the PM GatiShakti National Master Plan.
  • Innovation-driven initiatives like Startup India and the Production Linked Incentive (PLI) Scheme.
  • Expansion of the digital economy and financial inclusion efforts.
• Rural Demand and Consumption: Growth in rural demand and a recovery in farm production have bolstered consumer spending, although urban consumption remains affected by inflation and slow credit growth.