The World Bank has cut its 2026 global growth forecast to 2.5%, warning that the Middle East conflict, elevated oil prices, renewed inflation and tighter financial conditions are pushing the global economy toward its weakest pace since the COVID-19 shock. The lender said growth could fall as low as 1.3% if energy disruptions intensify and spill into financial markets.
Key Overview
- Global growth is now forecast at 2.5% in 2026, down from 2.9% in 2025.
- The World Bank said forecasts for two-thirds of economies have been downgraded since January.
- Brent crude is expected to average $94 per barrel in 2026 under the baseline outlook.
- A severe energy shock combined with financial stress could push global growth down to 1.3%.
- Developing economies are expected to slow to 3.6%, the weakest rate since the pandemic.
- The Middle East, North Africa, Afghanistan and Pakistan region is forecast to slow sharply to 1.6%.
Oil Shock Clouds Global Outlook
The World Bank’s latest Global Economic Prospects report paints a weaker outlook for 2026 as the Middle East conflict disrupts energy markets and renews inflation pressure across advanced and developing economies.
The institution now expects global output to expand by 2.5% in 2026, compared with 2.9% in 2025. It said the downgrade reflects higher energy costs, steeper borrowing costs and uncertainty caused by the conflict, which has disrupted trade and commodity flows.
The baseline forecast assumes Brent crude will average $94 per barrel in 2026, 36% above 2025 levels, while the most severe energy disruptions are expected to ease by the end of July. Even under that assumption, global inflation is projected to rise to 4.0%, from 3.3% in 2025.
The risk case is far more severe. If energy disruptions become deeper and are accompanied by substantial financial stress, the World Bank warned that global growth could slump to just 1.3% this year, while inflation could rise to 4.4%.
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Developing Economies Face Another Setback
The World Bank said developing economies are being hit hardest, with growth expected to drop to 3.6% in 2026 from 4.4% in 2025. That would be the weakest pace since the pandemic and a major blow to income convergence.
The report said developing economies outside China and India are at risk of a “lost decade,” with little progress in narrowing per capita income gaps with advanced economies by 2028. That warning reflects the combined pressure of high debt, slower private investment, weak trade growth and limited fiscal space.
The institution also warned that fertilizer price increases could create knock-on effects for food prices, adding pressure on households in low-income and import-dependent countries. Sub-Saharan Africa is expected to slow as food inflation and fertilizer shortages strain consumers, even as growth is projected to remain positive.
Middle East Economies Take the Biggest Hit
The sharpest downgrade falls on the Middle East, North Africa, Afghanistan and Pakistan region, where growth is now forecast to drop to 1.6% in 2026 from 4.0% in 2025.
According to regional projections, Gulf economies directly affected by the conflict are expected to see growth fall close to zero this year before rebounding in 2027 and 2028 as energy trade recovers and reconstruction spending begins.
Reuters reported that the United Arab Emirates, Iraq and other Middle East energy exporters faced some of the largest forecast cuts because the conflict has hit energy exports and raised uncertainty around shipping and investment. The UAE’s 2026 growth forecast was cut sharply to 2.4%, down from a 5.0% estimate in January.
India Remains a Bright Spot
Despite the downgrade, India remains the fastest-growing large economy, with GDP projected to expand by 6.6% in 2026 after 7.0% growth in 2025. China’s growth is forecast at 4.2%, a 0.2 percentage point downward revision from January.
Advanced economies are also expected to remain subdued. The United States is forecast to grow by 2.2% in 2026, while the euro area is projected at 0.8% and Japan at 0.7%.
The World Bank said global growth could improve to 2.8% in 2027 and 2028, but that would still remain 0.4 percentage points below the average pace of the 2010s. For policymakers, the challenge is now balancing inflation control with growth support while protecting energy and food security.
Sources Used: World Bank / Reuters
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