Published On 11/6/2026
The World Bank reduced its forecast for global growth in 2026 to 2.5%, the lowest level since the Covid-19 pandemic, warning that the war in the Middle East had raised energy and fertilizer prices, brought inflationary pressures back to the fore, and dashed expectations of rapid monetary easing in a number of economies.
The bank said in its semi-annual report, “Global Economic Prospects,” that global growth will slow from 2.9% in 2025 to 2.5% this year, with economies dependent on energy imports and countries directly affected by the war being harmed, with activity improving to 2.8% in 2027 and 2028 if energy supplies recover, monetary easing resumes, and trade improves.
The new forecasts come in light of the continuation of the US-Israeli war on Iran for the fourth month, and the accompanying disruptions in shipping through the Strait of Hormuz and a sharp rise in the prices of oil, gas and fertilizers, in addition to renewed concerns about food security in low-income countries and energy-importing economies.
The bank said that growth may decline to only 1.3% if energy supply disruptions intensify in conjunction with great pressures in financial markets, compared to a basic scenario that assumes that the worst energy disruptions will ease by the end of July, and that shipping traffic will gradually return to levels close to pre-war by the end of the year.
Energy shock
In the basic forecast scenario, the World Bank assumes that the average price of Brent crude will reach $94 per barrel in 2026, an increase of 36% over 2025 and more than 50% above its expectations in January, with an expected rise in European natural gas prices of about 30% due to tight global liquefied natural gas supplies.
The bank said that commodity prices will increase by 22% this year, in a sharp shift from January’s expectations, which indicated a 7% decline, driven mainly by the rise of energy and the disruption of commodity flows from the Gulf region, while fertilizer prices are expected to rise by 38% due to the Gulf’s role in exports of urea and diammonium phosphate, and the rise in prices of natural gas used in the production of nitrogen fertilizers.
The bank expects global inflation to reach 4% in 2026, declining to 3.1% in 2027 if the average oil price falls to $76 per barrel. However, the negative scenario puts inflation at 4.4% if the energy turmoil is prolonged and accompanied by widespread financial pressures.
Deputy Chief Economist at the World Bank, Ayhan, said that the risk scenarios show how quickly expectations will deteriorate if pressures in the energy and financial sectors reinforce each other, warning that confidence may quickly fade if the energy shock causes a similar shock in the financial markets.
The Middle East
The Middle East, North Africa, Afghanistan and Pakistan region received the largest reduction in growth expectations among the regions, as the bank reduced its expectations for the region by 2.7 percentage points to 1.6% in 2026, compared to growth of 4% in 2025, but it expects a recovery to 5% in 2027 if the peak of turmoil ends this year.
The bank said that oil economies in the Middle East will slow sharply to 0.3% in 2026, after lowering its forecast by 4.3 percentage points since January, due to the decline in oil and gas production and the disruption of trade, foreign investment and services, including tourism and aviation.
According to expectations, the bank reduced its growth estimate for Saudi Arabia to 3.1% in 2026, and the UAE to 2.4% after growth of 6.2% in 2025, while it expected the economy of Kuwait to contract by 6.4%, Iraq by 8.9%, and Qatar by 5.7%, and these are economies whose performance the report links to declining energy revenues and infrastructure disruptions.
The bank said that the Sultanate of Oman is relatively less exposed than some Gulf economies because its main ports are located outside the Strait of Hormuz.
Interest rates
The report believes that the war raised inflation expectations and led to a tightening of financial conditions, as bond yields rose in advanced economies, and expectations of lowering interest rates in the near term dissipated, while developing economies faced pressure on currencies, capital outflow, and a rise in the cost of borrowing.
World Bank chief economist Indermeet Gill told reporters that the global economy is much less flexible today than it was in 2008 and even compared to 2018, anticipating continued policy uncertainty, inflationary pressures and higher interest rates in the coming years.
The report warned that weak growth in developing economies threatens to halt the process of narrowing the income gap with developed countries, as it is expected that per capita income growth in emerging and developing economies will slow in 2026 to the weakest pace since the pandemic, and that dozens of developing countries, with the exception of China and India, will face what looks like a “lost decade” in the process of catching up with rich countries.
The bank indicated that developing economies will grow by 3.6% in 2026, down from 4.4% in 2025, while the United States is expected to grow by 2.2% this year, the Eurozone by 0.8%, Japan by 0.7%, and China by 4.2%, while India remains the fastest growing major economy at a rate of 6.6%.
The report explained that high government debt in emerging and developing economies raises risk premiums and local bond yields, and increases debt service burdens, thus limiting governments’ ability to finance infrastructure, public services, and investment that supports job creation.
The bank said that policymakers will need to balance containing inflation and supporting economic activity, while enhancing financial sustainability and maintaining financial stability, at a time when 1.2 billion young people in emerging and developing economies face entering the labor market by 2035 amid slowing growth, tight fiscal space, and transformations related to artificial intelligence.
