Global growth is forecast to slow to 2.5% in 2026 — the weakest rate since the COVID-19 pandemic — as the conflict in the Middle East disrupts energy markets and pushes inflation higher, according to the World Bank’s latest Global Economic Prospects report released June 11.
A Conflict That Reaches Every Corner of the Globe
The World Bank’s report is stark in its findings: the conflict in the Middle East has sent shockwaves through the global economy at a scale not seen since the pandemic years. With the Strait of Hormuz — the world’s most critical oil chokepoint — disrupted by hostilities, energy markets have seized up. Brent crude oil is now projected to average $94 a barrel in 2026, a full 36% above 2025 levels, assuming the worst disruptions ease by July. If they do not, the outlook darkens considerably.
“Developing countries have faced a series of challenges over the last decade. The impact differs by country, but the basic test is the same: protect people and preserve stability today, without giving up on growth and jobs tomorrow.”
Ajay Banga, President, World Bank Group
Global growth is now forecast to slow to 2.5% in 2026, down from 2.9% in 2025. Forecasts for two-thirds of all economies have been revised downward since January. The trajectory represents the weakest rate of expansion since the COVID-19 pandemic reshaped the world economy in 2020. Growth is expected to recover modestly to 2.8% in 2027, but the World Bank notes that figure remains 0.4 percentage points below the average recorded during the 2010s — a decade of relatively stable expansion.
Energy Shock Fuels Broader Inflation Return
The closure of the Strait of Hormuz has done more than push oil prices higher. It has rippled through agricultural markets as well. Fertilizer prices are forecast to rise sharply in 2026, with knock-on effects for food prices across import-dependent economies. The combined energy and food pressure is expected to push global inflation to 4.0% this year, up substantially from 3.3% in 2025. Central banks that had begun easing cycles are now facing renewed pressure to keep rates elevated, or to reverse cuts already in motion.
The scenario is particularly acute for the Gulf states, which sit at the epicenter of the conflict. Economies in the region are forecast to grow at close to zero in 2026, down from 3.9% in 2025 — the sharpest single-year deceleration of any regional grouping. The report projects a rebound to around 5% in 2027–28 as trade normalizes and reconstruction spending begins, but the near-term human and economic cost is already being felt in fiscal deficits, currency pressure, and credit downgrades.
The Developing World Bears the Heaviest Burden
While advanced economies will not be immune — growth in Europe and Central Asia is forecast to slow to 2.1% in 2026 — the report is most pointed about the impact on developing nations. Growth in developing economies is expected to drop to a post-pandemic low of 3.6% in 2026, down from 4.4% in 2025, before recovering to 4.2% in 2027.
South Asia, historically the world’s fastest-growing region, is not exempt. Its growth is forecast to slow from 7% in 2025 to 6.3% in 2026. Sub-Saharan Africa faces compounding pressures from fertilizer supply shortages and rising food prices, weighing on households already stretched by prior shocks. The World Bank calculates that by 2028, developing economies other than China and India will have experienced nearly a decade with essentially no progress in closing their per capita income gap with advanced economies — a setback that will take years to reverse.
The report’s debt analysis adds another layer of concern. Since 2010, aggregate government debt in developing economies has climbed from under 40% of GDP to over 70%. More indebted countries face sharply rising borrowing costs when they take on additional debt — a vicious cycle that limits their ability to respond to crises or invest in long-term development. The World Bank estimates that reducing debt levels in the most vulnerable economies could free up fiscal space equivalent to several percentage points of GDP, resources that could instead fund infrastructure, health, and education.
World Bank Pledges $100 Billion Response
The World Bank Group has committed to deploying up to $100 billion over 15 months to help affected countries navigate the shock. An initial $50–60 billion is being made available immediately through existing instruments, including $25 billion of pre-arranged financing. Over 30 countries are already working with the World Bank to enhance readiness and enable rapid response. If the conflict and its economic fallout persist, the institution says it can scale support to the full $100 billion threshold.
Speaking at the report’s launch, World Bank Deputy Chief Economist Ayhan Kose struck a note of measured urgency. “The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” he said. “This moment should be used to strengthen policy frameworks, invest in infrastructure, accelerate business-enabling reforms, and mobilize private capital to support job creation at scale.”
Downside Risk Remains Significant
The World Bank is careful to note that its 2.5% base-case forecast is not the worst scenario on the table. If energy supply disruptions prove more severe than currently assumed — and are accompanied by substantial financial stress — global growth could fall to just 1.3% in 2026, with inflation rising to 4.4%. That outcome would represent a near-complete stall in the global economy and would set back development progress by years, particularly in the most debt-stressed and commodity-dependent nations.
The report’s regional breakdowns paint a picture of broad-based weakness. East Asia and Pacific growth is forecast to fall to 4.2% in 2026 before firming to 4.4% in 2027. Latin America and the Caribbean is expected to slow to 2.2% in 2026, rising to 2.5% in 2027. The Middle East, North Africa, Afghanistan, and Pakistan region faces the steepest contraction — growth forecast to drop to just 1.6% in 2026 before recovering to 5.0% in 2027. Even the recovery path is conditional on the conflict resolving and reconstruction beginning.
For policymakers, the report’s implications are uncomfortable. Fiscal space is limited across the developing world. Monetary policy is constrained by the return of inflation. Debt levels are elevated. And the window to adapt before the next shock arrives is narrowing. The World Bank’s message is clear: the world cannot afford to wait for stability to return before acting. The time to build resilience is now, before the next crisis arrives.