Key Takeaways:
The World Bank cut its 2026 global growth forecast to 2.5%, warning the US-Iran war is the worst supply shock in half a century.
The World Bank cut its 2026 global growth forecast to 2.5% on Thursday, warning that the US-Iran war has triggered the biggest energy supply disruption in more than 50 years and pushed two-thirds of economies into weaker territory. The revised outlook, down from a January projection of 2.6%, would be the slowest expansion since the Covid-19 pandemic triggered a global recession in 2020.
"This is the biggest supply shock in more than 50 years," said Indermit Gill, the World Bank's chief economist. "If the conflict persists, the next thing that will be affected is food prices."
The Washington-based lender now expects Brent crude to average $94 a barrel this year, up about 50% from its January projection. Global headline inflation is forecast to climb to 4% from 3.3% in 2025, and could reach 4.4% if the war drags on. The US economy is expected to grow 2.2%, unchanged from the prior forecast, while China's outlook was revised down to 4.2% from 4.4%.
The downgrade assumes oil shipments through the Strait of Hormuz begin returning to normal from August. If energy disruptions prove more severe and are accompanied by financial stress, global growth could fall to 1.3% this year — roughly half the 2025 pace of 2.9%. The Strait of Hormuz handles about 21% of global oil trade, making it the most consequential chokepoint for energy markets.
Emerging Economies Bear the Brunt
Emerging and developing economies have been hit hardest by the repeated shocks of the 2020s, the bank said. Excluding India and China, per-capita incomes in these countries have lost ground relative to wealthier peers since the pandemic and likely won't recover before 2028, implying nearly a decade of lost income convergence. India's economy is expected to grow 6.6% this year, according to the report, while sub-Saharan Africa's regional growth was cut to 4% from 4.3%. Mozambique saw the sharpest revision among African nations, with its forecast slashed by 1.9 percentage points to 0.9%.
The bank warned of a likely worsening of food insecurity and lower agricultural incomes because of reduced fertilizer use, which could lead to food shortages in the second half of 2026 and into 2027. For oil-importing nations, the surge in energy prices is pushing up production costs and widening current account deficits, eroding the fiscal improvements many governments achieved in recent years.
World Bank Scales Up Crisis Support
The World Bank said it is stepping up support for weaker economies at risk from the Middle East war. It is making as much as $60 billion in credit available through existing instruments, including $25 billion of pre-arranged financing. More than 30 countries are actively working with the bank to enhance readiness and enable a rapid response, and the lender said it could scale up support to between $80 billion and $100 billion over 15 months.
The last time a conflict of this magnitude disrupted global energy markets was the 1973 oil embargo, when crude prices quadrupled and the world economy contracted. While the current shock is smaller in scale, the World Bank's worst-case scenario of 1.3% growth would still represent the weakest global expansion outside of a formal recession since the 2009 financial crisis.
This article is for informational purposes only and does not constitute investment advice.
