Global growth to stay subdued in 2026, SDG goals drift out of reach

The United Nations Department of Economic and Social Affairs (UN DESA) has recently released the World Economic Situation and Prospects (WESP) 2026, forecasting global economic output to expand by 2.7 per cent in 2026, slightly below the 2.8 per cent estimated for 2025 and well under the pre-pandemic average of 3.2 per cent. The world economy, the report notes, has struggled to regain its earlier momentum, with persistent shocks preventing a full recovery.

The world economy has not been able to regain its pre-pandemic growth momentum for some time now, with multiple shocks continuing to weigh on prospects. Uncertainties related to trade, particularly those arising from higher US tariffs along with ongoing geopolitical tensions, sanctions and supply chain disruptions, are affecting global growth. Although 2025 witnessed unexpected resilience, supported by solid consumer spending and easing inflation, the report cautions that underlying weaknesses persist.

Subdued investment, high global debt levels and shrinking fiscal space are weighing on economic activity, raising the risk of a prolonged low-growth phase compared to the pre-pandemic era.

The report notes that partial easing of trade tensions helped limit disruptions to international commerce. However, the risk associated with higher tariffs and with elevated macroeconomic uncertainties continue and likely to become more evident in 2026.

While financial conditions have eased due to monetary loosening and improved sentiment, concerns remain are about asset valuations, particularly areas related to AI-driven investments. High debt burdens and elevated borrowing costs are limiting the financial space for further investments particularly for many developing countries. A lack of fresh investments could further hamper their economic prospects. UN Secretary-General António Guterres stated that a combination of economic, geopolitical and technological tensions is reshaping the global landscape, generating new economic uncertainty and social vulnerabilities.

He added that many developing economies continue to struggle, making progress towards the Sustainable Development Goals (SDGs) increasingly distant for much of the world.

With only 17 per cent of the SDG targets currently on track for achievement by 2030, as per the Sustainable Development Report 2025, setbacks from conflicts, climate change, lower GDP growth and rising debt levels have offset gains in areas such as health, education and energy access.

The report emphasises that faster economic growth, particularly in least developed and low-income nations is crucial to address hunger, poverty, access to clean water, education, healthcare, and other sustainable development goals.

Persistent food inflation combined with weak economic growth risks pushing millions further into poverty. Despite easing global inflation, nearly half of developing countries recorded food inflation above 5% in 2024, exacerbating food insecurity in nations already grappling with extreme weather events, conflicts, and economic instability . Progress towards the Sustainable Development Goals remains insufficient and uneven.

Subdued global growth has been accompanied by slower economic convergence, with per capita income growth awakening across many developing economies, including in the least developed countries (LDCs).

Although the number of people living in extreme poverty defined as below $3 per day in 2021 Purchasing Power Parity (PPP) terms after returning to pre-pandemic levels in 2025, the decline has been marginal. Poverty remains increasingly concentrated in sub-Sahara Africa and in fragile and in conflict-affected countries.

High inflation continues to erode real incomes, disproportionately affecting low-income households, rural communities and women. At the same time, rising carbon emissions associated with economic activity are intensifying climate-related disasters, disrupting agriculture, pushing up food prices and straining public finances through higher spending on disaster response and reconstruction.

Antonio Guterres also warned that “strategic rivalries are eroding multilateralism and fragmenting markets”, disrupting global trade and investment. . Some vulnerable economies are losing access to the markets, finance and technology they need for job creation and prosperity.

He further noted that competition for critical minerals is weakening governance and social cohesion in several regions, driving uncertainty and division across affected communities. Rising military expenditure is diverting scarce resources away from social and development spending. “Countries are spending more on instruments of war than on investments in peace,” he said.

This summarises the current geopolitical tensions, ongoing conflicts and war, supply chain disruptions, diverting scarce resources for war and military preparedness, uncertainties in trade and policies leading to low economic growth globally.

Despite these challenges, the report offers some hope. In 2025, the international community took significant steps to strengthen global cooperation. The Sevilla Commitment outlined an ambitious agenda to scale up development finance, address the debt crisis and reform the international financial architecture.

The World Social Summit reaffirmed that jobs, equality and human rights are central to peace and prosperity, while COP30 trengthened global climate cooperation, advancing commitments on finance, adaptation and support for those most at risk.

However, the report cautions that these commitments must translate into concrete action. Recent withdrawals by the United States from several multilateral platforms, including Intergovernmental Panel on Climate Change, some UN bodies and the India-France-led International Solar Alliance, could weaken global cooperation efforts.

Growth prospects among major economies remain broadly stable but modest. The United States is projected to grow by 2.0 per cent in 2026 and 2.2 per cent in 2027, after slowing to 1.9 per cent in 2025.

The European Union is expected to grow by 1.3 per cent in 2026 and 1.6 per cent in 2027, while Japan’s growth is forecast at 0.9 per cent in 2026 and 1.0 per cent in 2027 below 1.2% growth rate estimated for 2025.

Among developing regions, China’s growth is projected at 4.6 per cent in 2026 and 4.5 per cent in 2027, down from an estimated 4.9 per cent in 2025. Africa’s growth is expected to rise from 3.9 per cent in 2025 to 4.0 per cent in 2026 and 4.1 per cent in 2027.

East Asia is likely to see growth moderate to 4.4% in both 2026,2027, while South Asia remains relatively strong, with growth projected at 5.6% in 2026 before recovering to 5.9% in 2027.

India’s growth is estimated at 7.4 per cent in 2025 and forecast at 6.6 per cent in 2026 and 6.7 per cent in 2027. The report attributes this resilience to strong domestic consumption, robust public investment, recent tax reforms and monetary easing, which are expected to cushion the impact of higher US tariffs.

Overall, the report concludes that geopolitical tensions, trade uncertainties, climate shocks, ongoing conflicts, heavy debt burdens and a volatile inflation environment are keeping global growth subdued. These pressures are limiting fiscal space, weakening multilateral cooperation and reducing financial flows to vulnerable countries.

From an SDG perspective, the slowdown is particularly worrying. Least developed countries (LDCs), landlocked developing countries (LLDCs) and small island developing states (SIDS) remain highly exposed to climate disasters and debt stress, underscoring the urgent need for stronger international financial support.

This calls for stronger international support for foster resilient and sustainable growth. There is also risks on account of inflation even though currently are under control as elevated prices continue to put strain on households and reinforce inequalities while geopolitical fragmentation, trade frictions and climate related risks add uncertainty to the inflation outlook.

(The author is former Chairman & Managing Director of Indian Overseas Bank)