World Bank: Middle East conflict dampens global growth in 2026

The World Bank Group’s latest Global Economic Prospects report shows that the Middle East conflict is driving global growth to its lowest pace since the COVID‑19 era, as borrowing costs rise, energy prices climb and inflation pressures mount.

World growth is projected to slow to 2.5% in 2026, down from 2.9% in 2025, and two‑thirds of economies will be downgraded compared with their January 2026 outlook.

Growth could rebound to 2.8% in 2027, yet this would still be about 0.4 percentage points below the average growth rate of the 2010s.

The report, released on Thursday, notes that by 2028 developing economies—excluding China and India—will have spent almost a decade without progress in closing the per‑capita income gap with advanced economies.

The closure of the Strait of Hormuz has sharply disrupted energy markets, with Brent crude projected to average $94 a barrel in 2026—36% above 2025 levels—if the worst disruptions ease in July.

Fertiliser prices are expected to surge this year, creating ripple effects on food prices. Together, these factors are driving global inflation higher, with a forecast rise to 4.0% in the coming months from 3.3% in 2025.

However, should energy supply cuts prove more severe and significant financial stress materialise, the report warns that global growth could fall to 1.3% in 2026, while inflation could climb to 4.4%.

Ajay Banga, President of the World Bank Group, said that although developing countries have faced a series of challenges over the past decade, the fundamental test remains protecting people and preserving stability without abandoning growth and jobs.

“We are providing liquidity where it is needed. We are ready with additional financing, guarantees and private‑sector solutions if pressures deepen,” Banga assured. “Our job is to help countries steady the ship, keep reforms moving, and emerge stronger on the other side.”

Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, emphasised that now is the time to “strengthen policy frameworks, invest in infrastructure, accelerate business‑enabling reforms, and mobilise private capital to support job creation at scale.”

In response to the Middle East crisis, the World Bank is providing $50–60 billion through existing instruments, including $25 billion of pre‑arranged financing to support the most vulnerable people, boost fiscal capacity and provide working capital as well as liquidity support for firms and farms.