Global economy — challenges ahead

WORLD Economic Forum – gathering of top leaders, business men and economists at Davos in their recommendations in January 2026 cautioned about the current health of Global Economy, headline inflation (which is projected to rise modestly in 2026 before resuming its decline in 2027), along with slowdown in growth, which is expected to be particularly pronounced in emerging markets and developing economies. Downside risks dominated the outlook for 2026.Recently IMF warned that after withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East. Assuming that the conflict remains limited in duration and scope, global growth is projected to slow to 3.1 percent in 2026 and 3.2 percent in 2027. Regional Growth Forecasts, according to World Bank projections indicate modest economic growth in different regions for 2026 .East Asia and Pacific is likely to grow by 4.4%, Europe and Central Asia by 2.4%, Latin America and the Caribbean by 2.3%, Middle East, North Africa, Afghanistan, and Pakistan by 3.6%, South Asia by 6.2% and Sub-Saharan Africa by 4.3%. Risks to the outlook, while more balanced, are still tilted to the downside, including the possibility of escalating geopolitical tensions, further trade fragmentation, and higher-for-longer interest rates. Natural disasters related to climate change could also hinder activity. Subdued growth prospects across many emerging market and developing economies and continued risks underscore the need for decisive policy action at the global and national levels as per research report of Global Economic Prospects, flagship of World Bank. Due to continued inflationary pressures, central banks in both advanced economies and emerging market and developing economies (EMDEs) will likely remain cautious in easing monetary policy. As such, average benchmark policy interest rates over the next few years are expected to remain about double the 2000 averag