Middle East Conflict to Push Global Growth to Post-Pandemic Low, World Bank Warns

The escalating conflict in the Middle East is set to drag global economic growth to its weakest level since the COVID-19 pandemic, as surging energy prices, rising inflation and higher borrowing costs ripple across economies worldwide, according to the World Bank Group’s latest Global Economic Prospects report.

The report projects global growth will slow to 2.5% in 2026 from 2.9% in 2025, with forecasts downgraded for two-thirds of the world’s economies compared with projections made in January. While growth is expected to recover modestly to 2.8% in 2027, it will remain below the average pace recorded during the 2010s.

The World Bank warned that the conflict is threatening to reverse development gains in many emerging economies and could leave developing countries struggling to close income gaps with advanced nations.

“Developing countries have faced a series of challenges over the last decade,” World Bank Group President Ajay Banga 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.”

Oil Shock Fuels Inflation Risks

At the centre of the economic disruption is the Strait of Hormuz, a critical global energy corridor whose closure has severely disrupted oil markets.

The World Bank forecasts Brent crude oil prices will average US$94 per barrel in 2026, representing a 36% increase over 2025 levels, assuming the most severe supply disruptions ease by July.

The impact extends beyond fuel markets. Fertiliser prices are also expected to rise significantly, raising concerns about food production costs and food security, particularly in developing countries.

As a result, global inflation is projected to climb to 4.0% this year, up from 3.3% in 2025.

The Bank cautioned that the situation could deteriorate further if energy disruptions intensify or trigger broader financial market stress.

Under a more severe scenario, global growth could fall to just 1.3% in 2026 while inflation rises to 4.4%.

Developing Economies Face New Setback

Growth across developing economies is expected to weaken sharply.

The report forecasts growth in developing countries will slow to 3.6% in 2026, down from 4.4% in 2025, before recovering to 4.2% in 2027.

Countries in the Gulf region directly affected by the conflict are expected to experience the sharpest slowdown, with growth falling from 3.9% in 2025 to near zero in 2026.

However, the World Bank expects economic activity in these economies to rebound to about 5% in 2027 and 2028 as trade recovers and reconstruction efforts begin.

The report also highlights a troubling longer-term trend. By 2028, developing economies excluding China and India will have spent nearly a decade without making meaningful progress in narrowing per capita income gaps with advanced economies.

Africa Faces Inflation Pressures

For Sub-Saharan Africa, the outlook remains challenging.

The region’s growth is expected to slow as higher food prices, driven partly by fertiliser shortages and rising agricultural input costs, fuel inflationary pressures.

The report suggests African economies remain particularly vulnerable to external shocks due to their dependence on commodity exports and exposure to volatile global markets.

South Asia is expected to remain the fastest-growing region globally, although growth there is also projected to slow from 7.0% in 2025 to 6.3% in 2026.

Debt and Commodity Dependence Under Spotlight

The World Bank’s analysis also raises concerns about the fiscal health of developing economies.

About two-thirds of developing countries and nearly 90% of low-income nations rely heavily on commodity exports. While commodity booms often generate substantial revenues, the report notes that many governments spend windfall earnings rather than saving them to strengthen fiscal buffers.

The institution recommends stronger fiscal rules, sovereign wealth funds and improved domestic revenue mobilisation to help countries better manage commodity price volatility.

Rising debt levels also remain a major concern.

According to the report, government debt across developing economies has increased from below 40% of GDP in 2010 to more than 70% today.

The World Bank found that highly indebted countries face significantly higher borrowing costs, limiting their ability to respond to crises and invest in infrastructure, education and healthcare.

World Bank Mobilises Crisis Support

In response to the growing risks, the World Bank Group has announced that it is making between US$50 billion and US$60 billion available through existing financing instruments, including US$25 billion in pre-arranged funding.

The support is intended to strengthen social protection programmes, enhance fiscal capacity and provide liquidity to businesses and farms affected by the crisis.

More than 30 countries are already working with the institution to strengthen preparedness and improve their ability to respond rapidly to the economic fallout.

Should the conflict persist and economic conditions worsen, the World Bank said it could expand its support to between US$80 billion and US$100 billion over the next 15 months.

World Bank Deputy Chief Economist Ayhan Kose said the crisis also presents an opportunity for countries to 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 mobilise private capital to support job creation at scale.”

The report underscores the growing vulnerability of the global economy to geopolitical shocks and suggests that the road to recovery could become significantly more difficult if the conflict deepens or spreads further across the region.