World Bank lowers 2026 global growth forecast to 2.5%

Investing.com -- The World Bank cut its global growth forecast for 2026 to 2.5% on Thursday, citing the impact of the Middle East war. The institution warned that growth could fall to just 1.3% if energy supply disruptions become more severe and trigger substantial stress in financial markets.

The updated projection represents a 0.1 percentage point reduction from the bank's January estimate and marks the lowest growth rate since the COVID pandemic that began in late 2019. Global growth reached 2.9% in 2025, up 0.2 percentage point from the January estimate.

The bank reduced forecasts for two-thirds of countries due to the war, with the largest cuts affecting the United Arab Emirates, Iraq and other Middle East nations whose energy exports have been disrupted by the conflict.

The war, which began with U.S. and Israeli strikes on Iran on February 28, has now entered its fourth month. The conflict has caused energy prices to rise sharply due to the closure of the Strait of Hormuz, creating renewed inflationary pressures worldwide and increasing expectations for tighter monetary policy across many countries. Fertilizer prices have also risen sharply, raising concerns about a potential food supply crisis.

Oil prices closed nearly $2 higher on Wednesday after U.S. President Donald Trump said the U.S. would attack Iran "very hard" if no peace deal was finalized, following one of the most significant exchanges of fire since an April ceasefire.

The World Bank's baseline forecast assumes an average Brent crude oil price of $94 for the year, up 36% from 2025. The forecast also assumes that the worst disruptions to energy supplies will end by the end of July, with global headline inflation reaching 4%.

Growth could slow to 2.1% if energy disruptions last longer and oil prices average $115 per barrel this year, which could push inflation to 4.4%. The outlook would deteriorate further if the energy shock affects financial markets, resulting in lower energy prices, greater volatility and weaker confidence.

"These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other," said Ayhan Kose, the World Bank's deputy chief economist. If the energy shock triggered a financial market shock, confidence could erode quickly, he said.

Global growth is expected to improve to 2.8% in 2027 and 2028, but that remains 0.4 percentage point below the average rates seen during the 2010s. World Bank chief economist Indermit Gill attributed this to slower population growth, slower private investment growth, falling public investment, rising public debt and slower growth in trade.

"The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018," Gill told reporters, predicting the next years would be marked by high policy uncertainty, inflationary pressures and high interest rates.

Developing economies have been hit harder by the war, with the bank now projecting growth at a post-pandemic low of 3.6% this year, down from 4.4% in 2025.

The bank maintained its forecast of 2.2% growth in the U.S. economy in 2026, but said that could decline to 2.1% in 2027 and 2% in 2028. The euro area is expected to grow by 0.8% in 2026, down from 1.4% in 2025. Japan's GDP is forecast to grow 0.7% in 2026, down from 1.1% in 2025.

The World Bank forecast GDP growth of 4.2% in China in 2026, a downward revision of 0.2 percentage point, after 5% growth in 2025.

The bank cut its forecast for GDP growth in the Middle East, North Africa, Afghanistan and Pakistan by 2.7 percentage points to 1.6% in 2026, down from 4% in 2025. Growth in the region could rebound to 5% in 2027.

The United Arab Emirates is expected to see growth of 2.4% in 2026, down sharply from the January forecast of 5% and the 2025 rate of 6.2%. The bank also lowered Turkey's 2026 GDP growth forecast by 0.9 percentage point to 2.8%.

India remains the fastest-growing large economy in the world, with its GDP seen growing by 6.6% in 2026, after growth of 7% in 2025. Growth rates in India are expected to remain fairly high for the next two decades, Gill said.

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