The World Bank has downgraded its global growth outlook for this year, stating that two-thirds of economies are experiencing worsening prospects as the Middle East conflict disrupts commodity flows and raises import costs.
Global Growth Forecast Cut
The world economy is projected to expand by 2.5% in 2026, down from a January estimate of 2.6%, according to a report released Thursday by the Washington-based lender. This would mark the lowest growth rate since the COVID-19 pandemic triggered a global recession in 2020.
A sharp increase in energy prices following the United States-Israeli attack on Iran in February is fueling inflation and harming countries reliant on imported fuel. The World Bank now expects Brent crude to average US$94 per barrel this year, approximately 50% higher than its previous projection.
Biggest Supply Shock in Decades
Indermit Gill, the World Bank's chief economist, described the situation as "the biggest supply shock in more than 50 years." He warned that if the conflict continues, food prices could be the next sector affected.
The bank noted that risks to its outlook are tilted to the downside. Global growth could fall to as low as 1.3% this year if energy supply disruptions are more severe than anticipated and are accompanied by significant financial stress.
Country-Specific Projections
The U.S. economy is expected to grow 2.2% this year, unchanged from the January forecast. Meanwhile, China's growth outlook was revised downward to 4.2% from 4.4%.
Global headline inflation is predicted to rise to 4% this year, up from 3.3% in 2025, and could potentially reach 4.4% if the war is prolonged.
Impact on Developing Economies
Emerging and developing economies have been particularly affected by the repeated shocks of the 2020s. Excluding India and China, per-capita incomes in these countries have fallen behind their wealthier counterparts since the pandemic and are unlikely to recover before 2028, representing nearly a decade of lost income convergence.
AI as a Potential Bright Spot
The report suggests that much of the hope for improved global prospects in the 2030s depends on artificial intelligence and its potential to boost productivity. This could reverse a structural economic slowdown and potentially turn the coming decade into "a golden era for job creation and growth."
However, any positive impact may not be evenly distributed between advanced and developing economies, as the latter have weaker digital infrastructure and skills, and lower exposure of jobs to AI.
World Bank Support Measures
The World Bank announced it is increasing support this year for weaker economies at risk from the Middle East war. Key measures include:
- Making up to US$60 billion in credit available through existing instruments, including US$25 billion of pre-arranged financing.
- Over 30 countries actively working with the bank to enhance readiness and enable a rapid response to the crisis.
- The potential to scale up support to between US$80–100 billion over 15 months.
