Deep Dive: The Global Economy Is Growing — But It Is Growing Apart

Inside the UN Financing for Development briefing — and what the data actually show

At UN Headquarters this week, senior economists from UN DESA, the IMF, the World Bank, and UNCTAD outlined the global economic outlook.

No one declared a crisis. But the consensus was clear:

The global economy is not collapsing. It is fragmenting.

And fragmentation, historically, is harder to fix than recession.

1. Growth Is Holding — But Narrow

UNCTAD forecasts global growth at 2.6% in 2026

UN DESA projects around 2.7%

The IMF’s baseline remains slightly more optimistic — but even there, growth is described as driven by a “narrow base of drivers”.

That phrase matters.

Well over half of projected global GDP growth in 2026 is expected to come from just three economies.

• China: ~26–27% of global growth

• India: ~16–18%

• United States: ~9–10%

China alone is projected to generate roughly a quarter of all new global output this year.

Remove these three, and the rest of the world accounts for less than half of global expansion.

Per capita income growth in developing economies has weakened in recent years, particularly in least developed countries.

Income convergence — the promise that poorer countries gradually catch up — is decelerating.

That is not cyclical.

That is structural.

2. Inflation Is Declining — But Diverging

Global inflation is projected to continue easing in 2026.

But divergence is widening:

• US inflation remains slightly above target into 2026.

• Euro area hovers near 2%.

• China’s inflation is rising from low levels.

• India returns toward target after food-driven declines.

Disinflation is happening.

But households do not consume headline inflation.

They consume food, utilities, housing.

And in many developing economies, high public debt and limited fiscal space restrict governments’ ability to shield vulnerable households.

The macro picture improves. The micro burden lingers.

3. Record Carbon — During “Resilient” Growth

2025 marked another record in energy-related CO₂ emissions — 37.8 gigatons, the highest on record.

UN DESA explicitly links this to the persistence of carbon-intensive growth patterns.

Climate shocks are no longer episodic. They are structural economic forces:

• Disrupting agriculture

• Driving food price spikes

• Increasing reconstruction spending

• Raising debt vulnerabilities in fragile states

We are not just missing climate targets; we are embedding climate risk deeper into fiscal balances.

4. AI Is Both the Cushion — and the Fault Line

This cycle’s resilience is heavily driven by technology investment — particularly AI.

In the United States, AI-related capital expenditure has supported growth even as construction and trade soften.

Financial markets are pricing in productivity gains.

The IMF estimates that rapid AI adoption could raise global growth by up to 0.3 percentage points in 2026, and possibly more over the medium term.

But here is the sharp edge:

If expectations are overly optimistic, and AI valuations correct, global growth could fall 0.4 percentage points in 2026 under a moderate correction scenario.

AI companies now account for a large share of equity market capitalization. Debt financing in the sector is rising. Ownership structures are increasingly opaque.

This is not just about tech stocks.

This is about wealth effects, pension exposure, sovereign debt markets, and cross-border capital flows.

Growth is currently supported by AI concentration.

That concentration is also a risk multiplier.

5. Debt: The Silent Constraint

Global sovereign debt is projected to exceed 100% of GDP by the end of the decade.

Frontier markets are issuing more sovereign bonds — but with rising vulnerability to sudden stops and defaults.

In many low-income countries:

• Debt service absorbs a significant share of public revenue

• Fiscal space is shrinking

• Investment in infrastructure and development is constrained

The World Bank warns that high debt is not inherently harmful — but becomes dangerous when growth underperforms or financial conditions tighten.

And financial conditions are accommodative — for now.

But equity valuations are elevated. Credit spreads are compressed. Market volatility has already increased around AI expectations.

This is a fragile equilibrium.

6. Trade Is Fragmenting — Financially, Not Just Politically

UNCTAD forecasts subdued growth in 2026 partly due to ongoing trade dislocations.

Trade policy uncertainty has eased somewhat but remains elevated by historical standards.

What is shifting more fundamentally:

Trade flows are increasingly shaped by financial cycles.

Supply chains depend on capital access. Technology access depends on geopolitical alignment. Rare earth restrictions, sectoral tariffs, and non-tariff barriers can rapidly disrupt production.

The Global South risks becoming peripheral to high-tech capital concentration.

And once fragmentation embeds itself into financial plumbing, it is harder to reverse than tariffs alone.

7. The Bigger Pattern: Growth Without Convergence

Only about 35% of SDG targets are on track or moderately progressing.

Extreme poverty declined only marginally in 2025 — from 839 million to 831 million people.

That is not transformation. That is stagnation.

Meanwhile:

• Advanced economies are easing fiscally to invest in AI, energy security, and aging populations

• Many developing economies are consolidating fiscally under debt pressure

One invests in the future. The other services the past.

The ONEST Analysis

This is not a recession story.

It is a divergence story.

The global economy is:

• Growing — but narrowly

• Disinflating — but unevenly

• Investing — but concentrated

• Borrowing — but asymmetrically

• Emitting — at record levels

• Cooperating — less predictably

The resilience is real.

So is the imbalance.

AI could raise productivity. It could also trigger asset repricing.

Trade talks could stabilize flows. Geopolitical escalation could disrupt them overnight.

Debt markets are functioning. They are also increasingly sensitive to risk repricing.

The world economy today is stable —but built on increasingly concentrated pillars.

If those pillars hold, growth continues. If one wobbles — AI valuations, sovereign debt markets, geopolitical stability — the adjustment will not be contained.

The Question Ahead of March’s Financing for Development Forum

The inter-agency task force will reconvene in March.

The real question is no longer: Will the world grow? It is: Will it grow together —or continue to grow apart?