- Global Growth to Slow to 2.50 Percent as Middle East Conflict Hits Energy Markets
The conflict in the Middle East is expected to push global growth to its weakest pace since the onset of the COVID-19 pandemic, as higher energy prices, rising inflation and increased borrowing costs weigh on economic activity, the World Bank Group has warned.
In its latest Global Economic Prospects report, the World Bank projected global growth to slow to 2.50 percent in 2026, down from 2.90 percent in 2025.
The Bank said growth forecasts for two-thirds of economies have been downgraded compared with projections made in January.
Global growth is expected to recover slightly to 2.80 percent in 2027, but will remain 0.40 percentage point below the average recorded during the 2010s.
The World Bank said weak growth in developing economies has stalled progress toward narrowing income gaps with advanced economies.
By 2028, developing economies excluding China and India are expected to have collectively experienced nearly a decade of no progress in narrowing their per capita income gap with advanced economies.
Ajay Banga, President of the World Bank Group, said developing countries are facing another major shock after years of overlapping crises.
“Developing countries have faced a series of challenges over the last decade,” he said.
“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,” he added.
Mr Banga said the World Bank is providing liquidity where it is needed immediately and is prepared to deploy 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 stated.
According to the report, the closure of the Strait of Hormuz has severely disrupted energy markets.
Brent crude oil prices are projected to average US$94 per barrel in 2026, representing a 36.00 percent increase over 2025 levels, assuming the worst disruptions ease in July.
Fertiliser prices are also forecast to rise significantly this year, with knock-on effects for food prices.
Together, the energy and fertiliser shocks are expected to push global inflation to 4.00 percent in 2026, up from 3.30 percent in 2025.
The World Bank warned, however, that downside risks remain substantial.
If energy supply disruptions become more severe and are accompanied by significant financial stress, global growth could fall to just 1.30 percent in 2026, while inflation could rise to 4.40 percent.
Developing economies are expected to be among the hardest hit.
Growth in developing economies is projected to fall to a post-pandemic low of 3.60 percent in 2026, down from 4.40 percent in 2025, before recovering to 4.20 percent in 2027.
Economies in the Gulf that are directly affected by the conflict are expected to suffer the sharpest blow, with growth falling from 3.90 percent in 2025 to close to zero in 2026.
The World Bank expects growth in those economies to rebound to about 5.00 percent in 2027 and 2028 as trade recovers and reconstruction spending begins.
To support countries facing the crisis, the World Bank Group said it is immediately making up to US$50 billion to US$60 billion available through existing instruments, including US$25 billion in pre-arranged financing.
The support is expected to help countries strengthen social safety nets, boost fiscal capacity, and provide working capital and liquidity support to firms and farms.
The Bank said more than 30 countries are already working with it to enhance readiness and enable rapid response under the support plan.
If the conflict and its economic fallout persist, the World Bank said it could scale up support to between US$80 billion and US$100 billion over 15 months.
South Asia is expected to remain the fastest-growing region in 2026, although its growth is also projected to slow sharply from 7.00 percent in 2025 to 6.30 percent in 2026.
Sub-Saharan Africa’s growth is also expected to slow, with the region facing pressure from inflation, high food prices and fertiliser supply shortages.
Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group, said the crisis should push countries to strengthen resilience and accelerate reforms.
“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,” he added.
The report also highlights fiscal challenges facing developing economies, particularly commodity exporters.
About two-thirds of developing economies and nearly 90.00 percent of low-income countries are commodity exporters.
However, the World Bank said these economies often have weaker fiscal positions because their revenues are volatile and less diversified.
The report found that five years after a positive commodity price shock, much of the revenue windfall is typically spent rather than saved to strengthen fiscal buffers.
The Bank therefore urged policymakers to rely on well-designed fiscal rules, sovereign wealth funds with clear stabilisation mandates, stronger domestic revenue mobilisation and greater economic diversification.
A second special chapter of the report warned that rising debt levels are making it harder for countries to respond to crises and invest in long-term development priorities.
Since 2010, aggregate government debt in developing economies has increased from under 40.00 percent of gross domestic product to over 70.00 percent.
The report said the more indebted a country already is, the more sharply its borrowing costs rise when it takes on additional debt.
This effect is particularly severe in vulnerable economies.
For countries with elevated debt-to-gross domestic product ratios, the World Bank said reducing debt levels can create meaningful financial rewards by opening fiscal space for infrastructure, health and education.
Regional projections show broad-based weakness across most parts of the world.
Growth in East Asia and the Pacific is projected to fall to 4.20 percent in 2026 before rising to 4.40 percent in 2027.
Europe and Central Asia are expected to slow to 2.10 percent in 2026 before edging up to 2.30 percent in 2027.
Latin America and the Caribbean are forecast to slow to 2.20 percent in 2026 before rising to 2.50 percent in 2027.
Growth in the Middle East, North Africa, Afghanistan and Pakistan region is projected to drop to 1.60 percent in 2026 before recovering to 5.00 percent in 2027.
South Asia is projected to grow by 6.30 percent in 2026 before rising to 6.90 percent in 2027.
Sub-Saharan Africa’s growth is expected to edge down to 4.00 percent in 2026 before rising to 4.40 percent in 2027.
For African economies, including Ghana, the report carries important policy implications.
Higher oil prices could increase import costs for fuel-dependent economies, while rising fertiliser prices may add pressure to food inflation and agricultural production costs.
At the same time, tighter global financial conditions could increase borrowing costs and limit fiscal space for governments already managing high debt levels.
The message from the World Bank is clear: the Middle East conflict is no longer only a regional security crisis.
It has become a global economic shock, with direct implications for energy prices, food costs, inflation, debt sustainability and growth in developing economies.
For policymakers, the challenge will be to protect vulnerable households, maintain fiscal discipline and support investment without worsening debt risks.
For developing economies, the coming months will test the strength of fiscal buffers, social protection systems and economic reform programmes.
The World Bank’s warning is therefore both urgent and strategic.
Unless the conflict eases and energy markets stabilise, the global economy could face another year of weak growth, elevated prices and rising pressure on the world’s poorest and most vulnerable countries.
