World Bank Warns Global Growth at Lowest Since COVID-19 as Gulf Economies Near Zero
World Bank Warns Global Growth at Lowest Since COVID-19 as Gulf Economies Near Zero
The World Bank delivered its starkest assessment of the global economy since the COVID-19 pandemic on June 11, 2026, cutting its growth forecast to 2.5% for this year — down from 2.9% in 2025 — as the escalating conflict in the Middle East reverberates through energy markets, supply chains, and sovereign debt markets across three continents.
The report, titled Global Economic Prospects: June 2026, identified the closure of the Strait of Hormuz as the single largest shock to the world economy this year. With roughly 20% of global oil shipments transiting the strait, Brent crude oil prices are projected to average $94 a barrel in 2026 — a 36% increase over 2025 levels — even under the assumption that the worst disruptions begin to ease by July. The knock-on effects are already visible in fertilizer markets, where prices have risen sharply, threatening food security across sub-Saharan Africa and South Asia.
“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. Our job is to help countries steady the ship, keep reforms moving, and emerge stronger on the other side.”
Brent Crude at $94 and Global Inflation Climbing to 4%
The energy price shock is the primary driver of a broad-based inflation resurgence. Global inflation is now forecast to rise to 4.0% in 2026, up substantially from 3.3% in 2025, squeezing household purchasing power in both advanced and developing economies simultaneously. The World Bank warned that 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 while inflation climbs to 4.4% — a stagnation scenario with persistent price pressures that would severely constrain policy response options.
Borrowing costs are rising in parallel. Since 2010, aggregate government debt in developing economies has climbed from under 40% of GDP to over 70%, and the World Bank analysis found that the more indebted a country already is, the more sharply its borrowing costs rise when additional debt is issued. For the most vulnerable sovereigns, the report warned, the penalty for high debt levels now includes not just fiscal strain but an accelerating inability to finance essential public services and reconstruction spending.
Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, noted that the human cost of the current shock extends well beyond balance sheets. “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.”
Gulf Economies Take the Largest Hit as South Asia Shows Resilience
Economies in the Gulf Cooperation Council states that are directly affected by the Hormuz closure are expected to take the most severe hit, with regional growth plummeting from 3.9% in 2025 to close to zero in 2026. The sudden halt in hydrocarbon transit revenues and the surge in import costs for energy-dependent industries have created a sudden-stop recession in several of the world’s most oil-rich nations. The World Bank projects a rebound to approximately 5% growth in 2027–28 as trade routes normalize and reconstruction spending begins, but the near-term human cost for workers and small businesses in those economies is already acute.
South Asia, by contrast, is expected to record the strongest growth of any region in the world in 2026, albeit a marked slowdown from 7% in 2025 to 6.3%. India’s diversified service economy and continued infrastructure investment are providing a buffer, while Bangladesh and Vietnam are gaining some manufacturing relocation as companies diversify away from higher-risk production locations. Even this resilient performance, however, depends critically on fertilizer price pressures abating and remittance flows from Gulf workers remaining intact — both uncertain in the current environment.
Sub-Saharan Africa’s growth is also slowing, with the biggest pressures coming through food inflation driven by fertilizer supply shortages. Five years after a positive commodity price shock, much of the revenue windfall is spent rather than saved in most commodity-exporting developing economies — a pattern the World Bank identifies as a structural vulnerability that the current crisis is exposing with brutal clarity. Nearly 90% of low-income countries are commodity exporters, and the report found they face more volatile and less diversified revenues than peers with broader economic bases.
