World Bank Cuts Global Growth Forecast as Middle East War Weighs on Economy
The World Bank has lowered its global economic growth forecast for 2026 to 2.5%, citing the ongoing conflict in the Middle East and its impact on energy markets, inflation, and financial conditions worldwide.
The institution also warned that global growth could slow dramatically to just 1.3% if disruptions to energy supplies intensify and trigger broader stress across financial markets.
The revised outlook was published in the World Bank’s latest Global Economic Prospects report and highlights growing concerns over the long-term economic consequences of the conflict.
Global Growth Outlook Deteriorates
According to the report, the global economy expanded by 2.9% in 2025, slightly above the World Bank’s previous estimate.
However, growth expectations for 2026 have been reduced to 2.5%, marking the weakest projected expansion since the COVID-19 pandemic period.
The World Bank lowered economic forecasts for approximately two-thirds of countries worldwide, with some of the largest downward revisions affecting Middle Eastern economies heavily reliant on energy exports.
Countries such as the United Arab Emirates, Iraq, and several neighboring nations have experienced significant disruptions linked to the conflict and higher energy market volatility.
Energy Crisis Remains the Biggest Risk
The World Bank noted that the war, which began following U.S. and Israeli strikes on Iran in late February, has entered its fourth month and continues to create substantial economic uncertainty.
A major factor behind the downgrade is the closure of the Strait of Hormuz, one of the world’s most important energy shipping routes. The disruption has driven oil and energy prices sharply higher, reigniting inflation concerns across many economies.
In addition to rising fuel costs, fertilizer prices have also surged, increasing concerns about global food supply pressures and higher agricultural production costs.
Oil prices received further support after President Donald Trump warned that the United States would intensify military action against Iran if a peace agreement was not reached.
Oil Price Assumptions and Inflation Outlook
The World Bank’s baseline forecast assumes an average Brent crude oil price of approximately $94 per barrel this year, representing a 36% increase compared to 2025 levels.
Under this scenario, the institution expects global inflation to average around 4%, while assuming that the most severe energy supply disruptions ease by the end of July.
However, the report outlines more pessimistic scenarios.
If energy disruptions persist for longer and oil prices average $115 per barrel, global growth could slow to 2.1%, while inflation could rise to 4.4%.
An even more severe outcome could occur if higher energy prices trigger financial market instability. Under that scenario, global economic growth could fall to just 1.3%, accompanied by weaker investor confidence and heightened market volatility.
According to World Bank Deputy Chief Economist Ayhan Kose, these scenarios demonstrate how quickly economic conditions could deteriorate if energy market stress and financial market pressures reinforce one another.
Long-Term Growth Expected to Remain Below Historical Levels
Although the World Bank expects global growth to improve modestly to 2.8% in both 2027 and 2028, that pace would still remain below the average growth rates recorded during the 2010s.
Chief Economist Indermit Gill highlighted several structural challenges that continue to weigh on the global economy, including slower population growth, weaker private investment, declining public investment, rising government debt levels, and slowing global trade expansion.
Gill also warned that the global economy is less resilient today than it was during previous periods of economic stress, including the 2008 financial crisis.
Developing Economies Face Growing Challenges
The report indicates that developing economies have been disproportionately affected by the ongoing conflict and broader economic headwinds.
Growth across developing countries is projected to slow to 3.6% in 2026, down significantly from 4.4% in 2025 and marking the weakest performance since the pandemic recovery period.
The World Bank warned that many developing nations, excluding China and India, could face what it described as a “lost decade,” with little progress in narrowing income gaps with advanced economies.
Regional Economic Forecasts
The World Bank maintained its forecast for U.S. economic growth at 2.2% in 2026 but expects growth to gradually slow to 2.1% in 2027 and 2.0% in 2028.
The Eurozone economy is projected to expand by 0.8% in 2026, down from 1.4% growth in 2025, while Japan’s economy is expected to grow by 0.7% after expanding by 1.1% the previous year.
China’s GDP growth forecast for 2026 was revised lower to 4.2%, compared with 5% growth expected in 2025.
Middle East Economies Hit Hardest
The most significant downgrades were concentrated in the Middle East, North Africa, Afghanistan, and Pakistan region.
The World Bank slashed its regional growth forecast by 2.7 percentage points, expecting economic growth of just 1.6% in 2026 compared with 4.0% in 2025.
The United Arab Emirates is now expected to grow by 2.4% in 2026, sharply lower than both its previous forecast and its 2025 growth rate.
Turkey also saw its 2026 growth forecast reduced to 2.8%.
India Remains the Bright Spot
Despite the broader slowdown, India continues to stand out as the fastest-growing major economy in the world.
The World Bank forecasts Indian GDP growth of 6.6% in 2026 following 7% growth in 2025.
Officials also expect India to maintain relatively strong economic growth over the coming decades, supported by favorable demographics, investment trends, and domestic demand.
As geopolitical tensions continue to affect energy markets and global confidence, the World Bank cautions that the outlook remains highly uncertain and vulnerable to further shocks.
