Middle East War to Penalize Global Economy, Accelerate Inflation: World Bank

The global economy faces its weakest growth prospects since the COVID-19 pandemic, with the ongoing conflict in the Middle East significantly impacting growth, inflation, and borrowing costs, according to the World Bank's latest Global Economic Prospects report.

Global GDP growth, projected at 2.9% for 2025, is now expected to slow to 2.5% this year. The conflict is directly contributing to higher energy prices. If the Strait of Hormuz remains disrupted, Brent crude prices are forecast to average $94 per barrel this year, a substantial 36% increase compared to 2025. This surge, coupled with rising prices for oil derivatives and fertilizers, is expected to have cascading effects on food prices, pushing global inflation to an estimated 4.0% this year, up from 3.3% in 2025.

The situation could worsen significantly. If energy supply disruptions prove more severe than anticipated and are accompanied by substantial financial stress, global inflation could climb to 4.4% in 2026, and worldwide growth could plummet to a mere 1.3%. Sub-Saharan Africa is expected to suffer disproportionately from rising food prices due to fertilizer shortages. However, the Gulf economies, directly impacted by the conflict, will face the most severe downturn, with their growth projected to fall from 3.9% in 2025 to near zero.

While growth forecasts have been revised downward for two-thirds of economies since January, the World Bank also expresses concern about a "lost decade" for many developing countries. Nearly half of these nations have failed to reduce income gaps with wealthier economies since 2019. By the end of the year, a quarter of developing economies are expected to be poorer than in 2019. The World Bank anticipates a global economic recovery by 2027, with growth projected to reach 2.8%, driven by stabilizing energy supplies, easing monetary policy, and strengthening trade.