Global economic growth is projected to slow to 2.5% this year, the weakest pace since the Covid-19 pandemic, as the war in the Middle East drives up inflation and borrowing costs, the World Bank has warned.
In its latest Global Economic Prospects report, the Washington-based institution downgraded growth forecasts for two-thirds of countries worldwide. Global growth stood at 2.7% in 2025.
Even if disruptions to oil shipments through the Strait of Hormuz ease next month, the World Bank expects global inflation to climb to 4% in 2026, up from 3.3% in 2025.
Average fertiliser prices are forecast to surge by as much as 38% this year due to supply disruptions in the Strait and shortages of key inputs from the Gulf region.
The bank said that, aside from India and China, developing countries will have experienced a full decade without narrowing the income gap with advanced economies. It described the 2020s as a potential “lost decade” unless a “miracle” occurs.
To help the hardest-hit nations cope with the fallout, the World Bank is making up to $100 billion available over the next 15 months.
With the fragile ceasefire between the US and Iran showing signs of strain, the bank cautioned that the economic outlook could worsen further.
“A renewed escalation of hostilities or more prolonged disruptions to commodity flows could further raise commodity prices, intensify inflationary pressures and food insecurity, trigger financial stress and lower growth,” it said. In such a downside scenario, global growth could plunge to just 1.3%.
“Developing countries have faced a series of challenges over the last decade,” said World Bank President Ajay Banga. “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.”
He added: “In response to the current shock, we are providing liquidity where it is needed now – and we are ready with additional financing, guarantees, and private-sector solutions if pressures deepen.”
Growth in Gulf economies is expected to drop sharply from 4.5% last year to just 1.3% in 2026, before rebounding strongly the following year as oil flows resume and reconstruction begins.
In his foreword to the report, the World Bank’s chief economist, Indermit Gill, pointed to three potential bright spots for developing economies in the coming decade: increased regional trade, the clean energy revolution, and artificial intelligence.
But he warns that the benefits of AI are heavily skewed towards the rich world, with less than a quarter of datacentres currently sited in developing economies, while “the languages of roughly half the world’s people remain poorly represented in the data that trains the models”.
