The escalating conflict in the Middle East is set to drag global economic growth to its weakest pace since the COVID-19 pandemic, as higher energy prices, rising inflation and increased borrowing costs weigh on economies worldwide, the World Bank has warned.
In its latest Global Economic Prospects report released on Thursday, the World Bank downgraded growth forecasts for nearly two-thirds of economies and projected global growth to slow to 2.5 percent in 2026 from 2.9 percent in 2025.
The lender said the slowdown would mark the weakest global growth rate since the pandemic and leave economic expansion well below pre-pandemic averages even as growth recovers slightly to 2.8 percent in 2027.
According to the report, the closure of the Strait of Hormuz has severely disrupted global energy markets, sending oil prices sharply higher and intensifying inflationary pressures across countries.
The World Bank projects Brent crude oil prices to average $94 per barrel in 2026, about 36 percent higher than in 2025, assuming the most severe supply disruptions ease in July.
The conflict has also pushed fertilizer prices higher, threatening food supplies and increasing pressure on household budgets, particularly in developing economies.
As a result, global inflation is expected to rise to 4.0 percent this year from 3.3 percent in 2025.
“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 said the World Bank was providing liquidity to countries facing immediate pressure and stood ready to increase support if conditions worsened.
“In response to the current shock, we are providing liquidity where it is needed now — and we are ready with additional financing, guarantees, and private-sector solutions if pressures deepen,” he said.
The report warned that risks remain tilted to the downside. If energy supply disruptions become more severe and trigger significant financial stress, global growth could plunge to just 1.3 percent in 2026 while inflation climbs to 4.4 percent.
Developing economies are expected to bear a significant share of the impact. Growth across developing countries is forecast to slow to 3.6 percent in 2026 from 4.4 percent in 2025 before recovering to 4.2 percent in 2027.
The economies most directly affected by the Middle East conflict are expected to suffer the sharpest slowdown. Growth in Gulf countries is projected to fall from 3.9 percent in 2025 to near zero in 2026 before rebounding to around 5 percent in 2027 and 2028 as trade recovers and reconstruction spending gathers pace.
Sub-Saharan Africa is also expected to face mounting pressures, particularly through higher inflation and rising food costs linked to fertilizer shortages and price increases.
The World Bank said weak growth in developing economies has further stalled progress toward closing income gaps with advanced economies. By 2028, developing economies excluding China and India will have collectively experienced almost a decade without meaningful progress in narrowing per capita income differences with advanced nations.
To cushion the impact of the crisis, the World Bank said it was making between $50 billion and $60 billion available immediately through existing financing instruments, including $25 billion in pre-arranged financing.
The institution added that more than 30 countries are already working with it to strengthen preparedness and accelerate responses to the economic fallout from the conflict.
Should the crisis persist, the World Bank said it could scale up its support to between $80 billion and $100 billion over the next 15 months.
“The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” said Ayhan Kose, the World Bank Group’s 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 mobilise private capital to support job creation at scale,” he said.
The report also highlighted growing fiscal vulnerabilities across developing economies, particularly commodity-exporting countries, many of which have spent previous revenue windfalls rather than strengthening public finances.
Rising debt levels are adding to the challenge. According to the World Bank, aggregate government debt in developing economies has climbed from less than 40 percent of GDP in 2010 to more than 70 percent today, increasing borrowing costs and reducing the ability of governments to respond to future crises.
The global lender said countries that reduce debt burdens would gain greater fiscal space to invest in infrastructure, healthcare and education, supporting long-term growth and job creation.
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