Taking a grim view of the ongoing Iran war and the Strait of Hormuz blockade, the World Bank has cut its global growth forecast for 2026 to 2.5%, apart from stating that growth could slow to just 1.3% if energy supply disruptions prove more severe and come with substantial stress in financial markets.
Global growth reached 2.9% in 2025, up 0.2 percentage point from its estimate in January. Its 2026 forecast is down 0.1 percentage point from January, the lowest seen since the COVID pandemic that began in late 2019,” the bank said in its semi-annual Global Economic Prospects.
The global monetary body has lowered forecasts for two-thirds of countries as a result of the war, with the biggest cuts affecting the United Arab Emirates (UAE), Iraq, and other Gulf countries whose energy trade has been hit hard by the conflict, especially due to the Hormuz stalemate.
The World Bank’s stark outlook comes as the war launched by the United States and Israeli strikes on Iran on February 28 drags into the fourth month. The disruptions at Hormuz (with international shipping and energy trade coming under the line of fire) have sent energy prices up sharply, renewing inflationary pressures worldwide and fuelling expectations of tighter monetary policy across the countries. Fertilizer prices have also gone up sharply, raising concerns about a major food supply crisis.
As per the World Bank’s projections, the average Brent crude oil price may remain at USD 94 for the year, up 36% from 2025. However, the worst disruptions to energy supplies will likely become less severe by the end of July, with global headline inflation seen at 4%.
“Growth could slow to 2.1% if the energy disruptions lasted longer and oil prices averaged USD 115 per barrel this year, which could drive inflation to 4.4%. The outlook would worsen further, with growth decelerating to just 1.3%, if the energy shock affected financial markets, resulting in lower energy prices, greater volatility, and weaker confidence,” the World Bank noted.
“These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other. If the energy shock triggered a financial market shock, confidence could erode quickly,” said Ayhan Kose, the World Bank’s deputy chief economist.
“The global growth may improve to 2.8% in 2027 and 2028, but the projected figure remains 0.4 percentage points below the average rates seen during the 2010s due to a slew of factors, including slower population growth, slower private investment growth, falling public investment, rising public debt, and slower growth in trade,” World Bank chief economist Indermit Gill said.
“The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018,” Gill noted, predicting the next few years would be marked by high policy uncertainty, inflationary pressures, and high interest rates.
“Weak growth in developing economies has stalled progress toward advanced-economy income levels, with dozens of developing countries other than China and India looking at a “lost decade” in which they saw no progress on narrowing their per capita income gap with advanced economies,” the Global Economic Prospects remarked.
Developing economies have been hit harder by the war, with the World Bank now projecting growth at a post-pandemic low of 3.6% this year, down from 4.4% in 2025. For the American economy, the bank maintained its forecast of 2.2% growth, but that could taper off to 2.1% in 2027 and 2% in 2028. The euro area was expected to grow by 0.8% in 2026, down from 1.4% in 2025. Japan’s GDP was forecast to grow 0.7% in 2026, down from 1.1% in 2025.
The World Bank forecast GDP growth of 4.2% in China in 2026, a downward revision of 0.2 percentage point, after 5% growth in 2025.
However, the GDP trajectory of the Middle East, North Africa, Afghanistan, and Pakistan will see a massive downward direction, with the ratio getting stuck at 1.6% in 2026, down from 4% in 2025. However, growth in these regions, in 2027, will likely rebound to 5%.
“India remained the fastest-growing large economy in the world, with its GDP seen growing by 6.6% in 2026, after growth of 7% in 2025. Growth rates in India were expected to remain fairly high for the next two decades,” Gill concluded.