Weak investments and climate change pose significant threats to the growth trajectory of developing economies following a period of substantial expansion.
According to the World Bank, developing economies are anticipated to exhibit the weakest long-term growth outlook since 2000 by the close of this year. This classification encompasses nations not recognized as advanced economies.
The World Bank’s latest report indicates that growth in these regions is expected to stabilize at approximately 4% over the next two years. When contrasted with global growth projections of 2.7% for both 2025 and 2026, developing nations appear to be outperforming on a relative scale. However, this progress is still diminishing when viewed against their historical growth patterns.
From 2000 to 2010, developing economies experienced their fastest growth rates since the 1970s. However, the financial crash of 2008-2009 interrupted this upward trajectory, curtailing trade, investments, and overall economic integration among nations.
Current Foreign Direct Investment (FDI) inflows, in relation to GDP, are now about half of what they were in the early 2000s. Furthermore, the World Bank forecasts that new global trade restrictions will be fivefold the average recorded from 2010 to 2019, posing additional challenges.
Challenges on the Horizon
The World Bank cautions that sluggish growth in developing nations will be inadequate for addressing poverty and achieving developmental objectives. By 2030, an estimated 622 million individuals are expected to live in extreme poverty, with a similar number facing hunger and malnutrition.
The interdependence among developing economies has intensified, creating a scenario where stagnant growth could have ripple effects on a larger scale; over 40% of their goods are traded among these nations, a significant increase from just 20 years ago.
Between 2019 and 2023, developing nations accounted for 40% of global remittances, an increase from 30% at the beginning of the century.
Despite these challenges, the World Bank warns that the next 25 years might be more arduous for developing economies than the last quarter-century. According to Indermit Gill, Chief Economist and Senior Vice President for Development Economics at the World Bank Group, many of the favorable conditions that facilitated previous growth have diminished. In their place are formidable barriers: high debt levels, weak investment and productivity growth, alongside the mounting impacts of climate change.
The threat of persistent inflation is another concern that could delay necessary interest rate decreases, further stalling investment opportunities.
Finding Hope in Adversity
The recent report also outlines potential strategies to enhance growth prospects, particularly through improvements in transportation infrastructure and the standardization of customs procedures, aimed at boosting trade.
Increasing investment levels and unlocking workforce potential are also critical. For instance, enhancing female labor force participation represents a significant opportunity for economic development.
On a hopeful note, the report indicates that the global economy may outperform expectations, contingent on strong growth in the US and China. Despite facing significant hurdles such as a property crisis and reduced consumer demand, China could benefit from stimulus measures, while positive spillover effects from robust US economic performance could significantly impact developing nations.
As developing economies navigate this complex landscape, the combined effects of strategic investment and global economic factors could pave the way for a brighter future.
Photo credit & article inspired by: Euronews
