The conflict in the Middle East is expected to drag global economic growth to its weakest rate since the start of the COVID-19 pandemic, as higher energy prices, rising inflation and increased borrowing costs put renewed pressure on countries already struggling with debt and slower development gains.

According to the World Bank Group’s latest Global Economic Prospects report, global growth is now forecast to slow to 2.5% in 2026, down from 2.9% in 2025. Forecasts for two-thirds of the world’s economies have been downgraded since January.

The World Bank expects growth to improve slightly to 2.8% in 2027, but that would still remain 0.4 percentage point below the average growth rate seen during the 2010s.

For developing economies, the outlook is especially concerning. The report warns that weak growth has stalled progress toward narrowing the income gap with advanced economies. By 2028, developing economies excluding China and India are expected to have gone nearly a decade without making meaningful progress in closing that per capita income gap.

Energy Shock Drives Inflation Higher

The biggest immediate pressure is coming from energy markets. The World Bank said the closure of the Strait of Hormuz has severely disrupted global energy supplies, with Brent crude oil prices projected to average $94 a barrel in 2026. That would be 36% higher than 2025 levels, assuming the worst disruptions ease in July.

Fertilizer prices are also expected to rise significantly this year, creating further risks for food prices. Together, those pressures are expected to push global inflation to 4.0% in 2026, up sharply from 3.3% in 2025.

The downside risks remain significant. If energy disruptions become more severe than currently expected and are accompanied by substantial financial stress, the World Bank warns that global growth could fall to just 1.3% in 2026, while inflation could rise to 4.4%.

World Bank Prepares Major Support Package

In response to the crisis, the World Bank Group said it is immediately making up to $50 billion to $60 billion available through existing instruments, including $25 billion in pre-arranged financing.

The support is designed to help countries protect social safety nets, strengthen fiscal capacity, and provide working capital and liquidity support for firms and farms. More than 30 countries are already working with the World Bank Group to improve readiness and enable a rapid response under the plan.

If the conflict and its economic consequences persist, the World Bank said it could scale up support to between $80 billion and $100 billion over 15 months.

“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 institution is providing liquidity where it is needed now and is prepared to offer additional financing, guarantees and private-sector solutions if pressures deepen.

“Our job is to help countries steady the ship, keep reforms moving, and emerge stronger on the other side,” he said.

Developing Economies Face Renewed Pressure

Growth in developing economies is expected to fall to a post-pandemic low of 3.6% in 2026, down from 4.4% in 2025. The World Bank expects that growth to recover to 4.2% in 2027.

The Gulf economies directly affected by the conflict are expected to suffer the sharpest slowdown, with growth falling from 3.9% in 2025 to close to zero in 2026. The report expects these economies to rebound to about 5% in 2027 and 2028 as trade recovers and reconstruction spending begins.

South Asia is still expected to be the world’s fastest-growing region in 2026, but even there the slowdown will be significant. Growth is projected to fall from 7.0% in 2025 to 6.3% in 2026, before rising to 6.9% in 2027.

Sub-Saharan Africa is also expected to slow, with inflation and food prices creating particular pressure because of fertilizer shortages and price increases.

“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 mobilize private capital to support job creation at scale.”

Debt and Commodity Dependence Add to the Challenge

The report also highlights deeper fiscal challenges facing developing economies. About two-thirds of developing economies, and nearly 90% of low-income countries, are commodity exporters. These countries often have weaker fiscal positions because their revenues are more volatile and less diversified.

The World Bank said that five years after a positive commodity price shock, much of the revenue windfall is typically spent rather than saved to strengthen public finances.

To better manage commodity price volatility, the report recommends stronger fiscal frameworks, including well-designed fiscal rules and sovereign wealth funds with clear stabilization mandates. It also points to the need for improved domestic revenue collection and greater economic diversification.

A separate chapter examines how rising debt is limiting the ability of countries to respond to crises and invest in long-term development. Since 2010, aggregate government debt in developing economies has climbed from under 40% of GDP to more than 70%.

The report finds that the more indebted a country already is, the more sharply borrowing costs tend to rise when additional debt is added. The effect is especially severe in more vulnerable countries.

For countries with elevated debt-to-GDP ratios, reducing debt could bring meaningful benefits, including lower borrowing costs, greater fiscal space, and more room to invest in infrastructure, health and education.

Regional Growth Outlook

East Asia and the Pacific is projected to grow by 4.2% in 2026 before firming to 4.4% in 2027.

Europe and Central Asia is forecast to slow to 2.1% in 2026 before edging up to 2.3% in 2027.

Latin America and the Caribbean is expected to slow to 2.2% in 2026 before rising to 2.5% in 2027.

The Middle East, North Africa, Afghanistan and Pakistan region is forecast to drop to 1.6% in 2026 before recovering to 5.0% in 2027.

South Asia is projected to fall to 6.3% in 2026 before rising to 6.9% in 2027.

Sub-Saharan Africa is expected to edge down to 4.0% in 2026 before rising to 4.4% in 2027.

For now, the report paints a picture of a global economy under renewed strain. The immediate shock is being driven by conflict, energy disruption and inflation, but the deeper concern is that many developing economies are entering this period with limited fiscal room, high debt and slower long-term growth prospects.

Story Focus Keywords

Middle East conflict global economy, World Bank global growth forecast, global economic slowdown 2026, Strait of Hormuz oil prices, developing economies debt crisis, global inflation 2026, World Bank financing package, emerging markets growth outlook

Instagram Post