World Bank Slashes Global Economic Growth Forecast Amid Iran War Impact

The ongoing conflict involving Iran has significantly impacted global economic prospects, prompting the World Bank to revise its growth forecasts downward. In its latest "Global Economic Prospects" report, the institution warns that the energy crisis stemming from the U.S., Israel, and Iran conflict is severely affecting the global economy.

The World Bank now projects global economic growth to slow to 2.5% in 2026, marking the lowest level since the COVID-19 pandemic. The report highlights that this projection could be further reduced to a mere 1.3% if energy supply disruptions intensify and spill over into financial markets.

Since the military actions initiated by the U.S. and Israel against Iran over three months ago, the Strait of Hormuz has been in a state of near-closure. This has led to substantial price increases for oil, natural gas, fertilizers, and industrial chemicals. The World Bank describes this as one of the most severe energy supply shocks in nearly 50 years, exerting pressure on both developed and developing economies.

Approximately two-thirds of the world's economies have seen their growth forecasts revised downwards, with the Middle East region experiencing the most profound impact. Nations heavily reliant on energy exports, such as the United Arab Emirates and Iraq, face considerable economic repercussions due to disrupted exports and slowed investment.

Ayhan Kose, World Bank Deputy Chief Economist, noted that while the global economy is not in recession, its growth momentum is clearly weakening. He expressed concern that many developing countries have fewer policy tools and fiscal resources available to manage this shock compared to the past, making them more vulnerable. The bank's baseline scenario anticipates Brent crude oil averaging $94 per barrel in 2026, a 36% increase from the previous year, with global inflation around 4%. However, a prolonged energy supply disruption, pushing oil prices to $115 per barrel, could reduce global growth to 2.1% and inflation to 4.4%. The situation could deteriorate further if the energy crisis triggers financial market turmoil, leading to decreased confidence and increased volatility, potentially slashing global growth to 1.3%.

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The global economy is not in recession, but its growth momentum is clearly weakening, and many developing countries have far fewer policy tools and fiscal resources available to face this shock than in the past, so their ability to withstand risk is weaker.