World Bank Lowers Global Growth Forecast Amid Mideast Tensions

Global Economic Outlook Deteriorates

The World Bank has revised its global economic growth projections downward, primarily due to the escalating conflict in the Middle East. According to its June Global Economic Prospects report, the world economy could see growth decelerate to 2.5% by 2026.

The report highlights that rising energy costs, persistent inflation, and increased borrowing expenses are contributing to the lowest growth rates observed since the onset of the COVID-19 pandemic. This adjustment signifies a downward revision for two-thirds of economies compared to the Bank's January forecasts.

Key Risks to Global Stability

The World Bank's analysis warns that global growth could plummet to 1.3% by 2026 if severe disruptions to energy supplies materialize. Such a scenario would also likely push inflation up to 4.4%.

The potential closure of the Strait of Hormuz is identified as a significant threat to energy markets. Brent crude oil prices are anticipated to average $94 per barrel this year, marking a 36% increase over 2025 levels.

Furthermore, an expected rise in fertilizer prices could trigger a cascade of effects on food costs. Global inflation is projected to climb to 4% this year, up from 3.3% in 2025.

Stagnation in Developing Economies

Growth in developing economies is forecast to drop to 3.6% this year, representing the lowest level since the pandemic. Developing nations, excluding China and India, may experience nearly a decade of stagnation in closing the per capita income gap with advanced economies.

Gulf economies, directly impacted by the Middle East conflict, are expected to face the most significant downturn, with growth nearing zero by 2026. However, these economies are projected to rebound to approximately 5% growth between 2027 and 2028, driven by trade recovery and reconstruction efforts.

World Bank Support and National Projections

The World Bank has affirmed its commitment to supporting developing countries grappling with crises. The institution plans to provide between $50 billion and $60 billion in emergency funding, including $25 billion in pre-arranged financing.

These funds aim to bolster social safety nets, enhance fiscal capacity, and provide liquidity to businesses. Should the conflict persist, the Bank indicated it could increase its support to $80 billion to $100 billion over 15 months.

Country-specific revisions show Turkey's growth forecast for 2026 reduced from 3.7% to 2.8%, and for 2027 from 4.4% to 3.7%. Turkey is expected to achieve 4.3% growth in 2028.

The U.S. economy is projected to grow by 2.2% this year. Growth expectations were also lowered for Japan (from 0.8% to 0.7%), the Euro Area (from 0.9% to 0.8%), and China (from 4.4% to 4.2%). Gulf nations like Saudi Arabia and the United Arab Emirates also saw their growth forecasts revised downwards.