U.N. warns global economy will stay in “low gear,” with growth stuck below pre-pandemic pace

Global economic growth will slow to 2.7% next year and remain stuck below its pre-pandemic pace for at least several years, the United Nations warned Thursday, describing a world economy “in low gear” amid high debt, weak investment, trade tensions and uneven gains from new technologies.

In its annual World Economic Situation and Prospects 2026 report, released Jan. 8 in New York, the U.N. Department of Economic and Social Affairs projected global output would expand 2.8% in 2025, 2.7% in 2026 and 2.9% in 2027. That compares with an average of about 3.2% growth in the decade before COVID‑19.

Far from a temporary hangover, U.N. economists said the figures point to a structural downshift.

“The global economy is on a persistently slower growth path than in the pre-pandemic era,” the report said, citing subdued investment, limited fiscal space, elevated debt burdens, repeated climate shocks and “elevated trade and geopolitical tensions.”

António Guterres, the U.N. secretary-general, said in a statement that a “combination of economic, geopolitical and technological tensions is reshaping the global landscape, generating new economic uncertainty and social vulnerabilities.”

A low-growth “new normal”

The report, prepared with input from the U.N. Conference on Trade and Development and the organization’s five regional commissions, portrays a world that has avoided a near-term recession but appears locked into what some economists call a low-growth trap.

Headline inflation is easing globally — from an estimated 4.0% in 2024 to a projected 3.1% in 2026 — after the price surges that followed the pandemic and Russia’s invasion of Ukraine. But the U.N. warned the cost-of-living crisis is not over, especially for low-income households.

“Even as inflation recedes, high and still rising prices continue to erode the purchasing power of the most vulnerable,” Li Junhua, U.N. under-secretary-general for economic and social affairs, said at the report’s launch.

The report noted that prices for food, energy and housing remain elevated in many countries and that inflation has become more uneven across regions. Weather-related crop failures, shipping disruptions and geopolitical tensions are contributing to recurring supply bottlenecks, it said.

At the same time, global trade and investment — traditional engines of growth — are under strain.

World trade volumes surprised on the upside in 2025, growing an estimated 3.8% despite a sharp increase in U.S. tariffs that year on a range of imports. The U.N. attributed the stronger-than-expected figure in part to companies rushing shipments ahead of tariff hikes and to robust trade in services.

Those temporary supports are expected to fade. Trade growth is forecast to slow to 2.2% in 2026 as higher tariffs, policy uncertainty and a gradual reordering of supply chains weigh on cross‑border flows.

Investment “remains subdued” in most regions, the report said, held back by high borrowing costs, tighter government budgets and geopolitical risks. It pointed to “pockets of strong capital spending” in artificial intelligence and related technologies but warned that benefits are likely to be highly concentrated.

Valuations in AI‑linked sectors were described as “stretched,” raising the risk of asset price corrections. Without policies to broaden access to technology, skills and digital infrastructure, the report said, rapid advances in AI could “widen structural inequalities between and within countries.”

A two-speed world

Behind the global averages, the report painted a picture of a two-speed global economy.

East and South Asia remain the fastest-growing regions. Overall growth in East Asia is projected to moderate from 4.9% in 2025 to 4.4% in 2026 as the boost from front‑loaded exports wanes. South Asia is expected to expand 5.9% this year and 5.6% next year, well above the global rate.

China’s economy is forecast to grow 4.9% in 2025, 4.6% in 2026 and 4.5% in 2027, supported by targeted policy measures and a temporary easing of trade tensions with the United States. The report noted that a limited, one-year truce that included selective tariff reductions has helped stabilize bilateral trade, though broader frictions remain.

India is singled out as a standout performer. The U.N. projected growth of 7.4% in 2025 and 6.6% in 2026, driven by resilient private consumption, substantial public investment in infrastructure and an expected easing of inflation and interest rates.

By contrast, major advanced economies are seen growing at roughly 1% to 2% a year.

In the United States, growth is forecast at 1.9% in 2025 and 2.0% in 2026. The report said looser monetary policy and ongoing fiscal support will underpin activity but noted that earlier tariff increases, a softening labor market and still-high borrowing costs will weigh on momentum.

The European Union is expected to expand 1.5% in 2025 and 1.3% in 2026, before edging up to 1.6% in 2027. Weaker exports, exposure to higher U.S. tariffs and the lingering impact of Russia’s war in Ukraine were cited as key drags.

Japan’s growth is projected to slow from 1.2% in 2025 to 0.9% in 2026 as temporary pent‑up demand fades and export sectors, including automobiles, face pressure from U.S. trade measures and policy uncertainty.

Emerging markets and developing regions sit uncomfortably in between.

Africa’s economy is projected to grow 3.9% in 2025, 4.0% in 2026 and 4.1% in 2027. Those rates are stronger than those of many rich countries but are described as insufficient to meet the continent’s development needs, given rapid population growth, high debt and mounting climate risks. The report highlighted repeated climate‑related disasters as a major threat to agriculture, infrastructure and fiscal stability.

Latin America and the Caribbean are expected to see growth hover around 2.4% in 2025, 2.3% in 2026 and 2.5% in 2027, as only a mild recovery in investment offsets moderate consumer demand. The U.N. warned of “persistent structural constraints” in productivity, inequality and public finances.

Western Asia is forecast to accelerate from 3.4% growth in 2025 to 4.1% in 2026, helped by stabilizing energy markets and some diversification efforts, but remains highly exposed to geopolitical tensions and security risks.

For the world’s 46 least developed countries, the outlook is mixed. Growth is projected to rise from about 3.9% in 2025 to 4.6% in 2026 and 5.0% in 2027, with economies such as Bangladesh, Ethiopia and Tanzania expected to expand more quickly. Yet those rates fall short of the 7% annual growth target set under Sustainable Development Goal 8.

“Many developing countries are at risk of being left behind,” the report said, warning that progress toward the U.N.’s 2030 Agenda for Sustainable Development is “distant for much of the world.”

Debt, climate and the SDG squeeze

A central concern running through the 2026 outlook is the interaction of high debt, tight fiscal space and mounting climate costs.

Many low- and middle-income countries face elevated public debt and higher interest bills after borrowing heavily during the pandemic and amid global rate hikes. Servicing that debt is crowding out spending on social protection, health, education and climate-resilient infrastructure, the report said.

The U.N. noted that access to affordable finance is particularly constrained for low-income and climate‑vulnerable states, including small island developing countries. At the same time, more frequent and severe weather disasters are damaging crops, homes and public works, forcing governments to redirect scarce funds toward emergency relief and reconstruction.

The report linked these pressures directly to social and political risks. With growth weak and prices still high, it warned, governments may struggle to meet public expectations, heightening the risk of unrest, polarization and eroding trust in institutions.

Calls for action

Beyond diagnosis, the U.N. used the 2026 forecast to renew its push for changes in the global economic system.

The report called for expanded concessional lending and more effective mechanisms to restructure unsustainable debt, especially for countries facing climate vulnerabilities. It pointed to the “Sevilla Commitment,” the outcome document from the Fourth International Conference on Financing for Development, as a reference point for overhauling the international financial architecture.

The U.N. also urged governments to resist further trade fragmentation and to strengthen the rules-based multilateral trading system, arguing that a more open and predictable framework would support investment and productivity.

On technology, the report recommended policies to spread the gains from AI and digitalization more broadly, including investment in skills, digital infrastructure and regulatory frameworks that support innovation while addressing potential job losses and market concentration.

“The choices that policymakers make today on debt, investment, trade and technology will determine whether the world economy remains stuck in low gear or can shift toward a more sustainable and inclusive trajectory,” Li said.

For now, the U.N. forecast suggests the world is heading into another year of “two‑point‑something” growth — enough to avert a global downturn, but, on current policies, not enough to restore pre‑pandemic dynamism or to bring the ambitions of the 2030 development agenda within easy reach.