Middle East Conflict Sends Global Growth to Lowest Rate Since COVID-19
Middle East Conflict Sends Global Growth to Lowest Rate Since COVID-19
The World Bank delivered a stark assessment of the global economy on June 11, 2026, cutting its growth forecast to 2.5% for this year — the weakest expansion since the COVID-19 pandemic — as escalating tensions in the Middle East severely disrupted energy markets and pushed inflation sharply higher. The projection represents a significant downgrade from the 2.9% growth recorded in 2025, with forecasts for two-thirds of all economies revised downward relative to the World Bank January assessment. The report underscores how the closure of the Strait of Hormuz has sent shockwaves through global commodity markets, threatening to unravel hard-won economic gains from the post-pandemic recovery. Central banks across both advanced and developing economies now face an increasingly difficult balancing act between supporting growth and containing price pressures that show few signs of abating.
“Developing countries have faced a series of challenges over the last decade,” said Ajay Banga, President of the World Bank Group. “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.” Banga emphasized that the World Bank stands ready to deploy up to $100 billion in financing over the next 15 months to help affected economies weather the crisis, with $50-60 billion made immediately available through existing instruments including $25 billion in pre-arranged financing. The institution has already activated response plans with over 30 countries to provide social safety nets, boost fiscal capacity, and supply working capital to embattled businesses and farms facing supply chain disruptions.
Energy Prices Surge as Strait of Hormuz Closure Reshapes Trade Flows
Brent crude oil prices are projected to average $94 per barrel in 2026 — a 36% increase over 2025 levels — assuming the most severe disruptions to the Strait of Hormuz ease by July. The waterway, which carries roughly one-fifth of the world oil supply, has become a flashpoint in the escalating regional conflict, forcing shippers to reroute cargo around the Cape of Good Hope at substantially higher insurance and transit costs. Fertilizer prices are forecast to climb significantly as well, with knock-on effects for agricultural commodity prices worldwide. The World Bank modeling suggests that if energy supply disruptions prove more severe than currently assumed and are accompanied by substantial financial stress, global growth could crater to just 1.3% in 2026 while inflation surges to 4.4% — a scenario that would meet the technical definition of a global recession by most measures.
“The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” said Ayhan Kose, the World Bank Group Deputy Chief Economist and Director of the Prospects Group. “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.” Kose remarks point to a broader policy debate unfolding in finance ministries and central banks from Washington to Beijing, where officials weigh short-term stimulus against long-term fiscal sustainability. The World Bank report warns that the debt burden accumulated since 2010 has materially narrowed governments ability to respond to shocks — aggregate government debt in developing economies has climbed from under 40% of GDP to over 70% in just 15 years, and the institution finds that the more leveraged a country already is, the more sharply its borrowing costs rise when it attempts to borrow additional funds.
Gulf Economies Face Near-Zero Growth as Region Braces for Prolonged Uncertainty
Economies in the Gulf Cooperation Council states that are most directly exposed to the Middle East conflict are expected to take the sharpest hit, with regional growth plummeting from 3.9% in 2025 to close to zero in 2026. Saudi Arabia, the United Arab Emirates, Qatar, and their neighbors face simultaneous pressures from reduced hydrocarbon transit revenues, elevated defense spending, and a sharp deterioration in consumer and investor confidence. The International Monetary Fund has separately warned that remittance flows from the Gulf back to South Asia and North Africa could contract by up to 15% if the political situation remains unresolved through the end of the year, crimping foreign exchange receipts for countries that depend heavily on migrant worker transfers. World Bank projections show a modest rebound to approximately 5% growth for Gulf economies in 2027-28, assuming the conflict subsides and large-scale reconstruction spending kicks in, but the near-term human cost in lost income and employment remains severe.
Global inflation is expected to accelerate to 4.0% this year, up substantially from 3.3% in 2025, as higher energy and food costs filter through to consumer price indices across both advanced and emerging markets. The European Central Bank and the Federal Reserve both face the uncomfortable prospect of having to reverse course on their recent rate-cutting cycles, with futures markets now pricing a meaningful probability of rate hikes before year-end for the first time since 2023. Emerging market central banks are in an even more precarious position: those with dollar-denominated debt face climbing interest expenses even as their currencies depreciate against the greenback, raising the specter of sovereign debt restructurings in the most vulnerable economies. The World Bank report highlights that five years after a positive commodity price shock, much of the revenue windfall tends to be spent rather than saved through sovereign wealth funds or fiscal buffers — a pattern that leaves governments poorer equipped to handle the inevitable downturn that follows.
Debt Loads and Fiscal Vulnerabilities Compound Growth Risks Through 2027
South Asia is expected to register the strongest growth of any region in 2026, but even that performance represents a marked deceleration from the 7% expansion recorded in 2025. India and Bangladesh in particular are contending with higher import bills for energy and raw materials even as their garment and software export sectors face softening demand from European and American buyers. Sub-Saharan Africa growth is also trending downward, with inflation pressures — especially high food prices driven by fertilizer shortages — representing the most immediate challenge for households and policymakers alike. The World Bank estimates that nearly 90% of low-income countries are commodity exporters, making them disproportionately exposed to the kind of price volatility that the current crisis has amplified. Without well-designed fiscal rules, sovereign wealth funds with clear stabilization mandates, and serious domestic revenue mobilization, the report warns that these economies will remain perennially one bad harvest or one geopolitical shock away from crisis.
Looking further out, global growth is projected to recover modestly to 2.8% in 2027, but that trajectory remains contingent on the conflict in the Middle East subsiding and energy markets returning to some semblance of normalcy. The World Bank central scenario assumes the Strait of Hormuz reopens to near-normal traffic by the third quarter of 2026, oil prices retreat from their 2026 peak, and central banks are able to bring inflation back toward their targets without engineering a hard landing. If any of those conditions fail to materialize — particularly if the conflict spreads or energy infrastructure suffers lasting damage — the downside scenarios modeled by the institution paint a considerably darker picture for the world economy. For now, policymakers in finance ministries and central bank boardrooms are urgently reviewing contingency plans, with the World Bank positioning itself as a critical line of defense for the most exposed developing economies.
