The World Bank on Thursday reduced its forecast for global economic expansion in 2026 to 2.5%, attributing the downgrade primarily to the economic effects of the Middle East war. In a stress scenario, the institution warned growth might fall to as low as 1.3% if energy supply disruptions worsen and trigger considerable turmoil in financial markets.
The 2.5% projection is 0.1 percentage point below the bank's January estimate and represents the slowest pace of global growth since the COVID pandemic that began in late 2019. For 2025, the World Bank reported global growth of 2.9%, which was 0.2 percentage point higher than the January projection.
Officials said the conflict has already prompted downward revisions for roughly two-thirds of countries covered in the bank's outlook. The largest downgrades have been concentrated in the United Arab Emirates, Iraq and other nations in the Middle East whose energy exports have been disrupted by the fighting.
The bank described the conflict as having begun with U.S. and Israeli strikes on Iran on February 28 and noted that it has moved into its fourth month. Among the economic consequences cited were sharply higher energy prices after the closure of the Strait of Hormuz, renewed inflationary pressures, increased expectations for tighter monetary policy across many countries, and a sharp rise in fertilizer prices that raises concerns about potential strains on food supply.
Market moves reflected the heightened tensions. 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.
In its baseline scenario, the World Bank assumed an average Brent crude price of $94 per barrel for the year - an increase of 36% from 2025. The forecast further assumes that the most severe interruptions to energy supplies will have ended by the end of July and that global headline inflation will rise to 4%.
The institution outlined alternative scenarios. If energy disruptions persist longer and oil averages $115 per barrel for the year, global growth could slow to 2.1% and headline inflation could rise to 4.4%. The bank warned the outlook would worsen further if the energy shock spilled over into financial markets, producing lower energy prices accompanied by higher 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. He added that if the energy shock triggered a financial market shock, confidence could erode quickly.
Looking beyond 2026, the World Bank expects global growth to recover to 2.8% in both 2027 and 2028. Still, that pace is 0.4 percentage point below average growth rates recorded during the 2010s. World Bank chief economist Indermit Gill pointed to a combination of structural headwinds behind the weaker medium-term outlook, citing 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. He predicted that the coming years would be characterized by elevated policy uncertainty, inflationary pressures and high interest rates.
The bank said developing economies have borne the brunt of the conflict's economic fallout. It now projects growth for developing economies at a post-pandemic low of 3.6% in 2026, down from 4.4% in 2025.
Country and regional forecasts in the report showed a mix of downgrades and modest resilience. The World Bank kept its forecast for U.S. growth at 2.2% in 2026, while noting the U.S. rate could slip to 2.1% in 2027 and to 2.0% in 2028. The euro area is forecast to expand by 0.8% in 2026, a downgrade from 1.4% in 2025. Japan's GDP is expected to grow 0.7% in 2026, down from 1.1% the prior year.
China's economy is projected to grow 4.2% in 2026 - a downward revision of 0.2 percentage point - following 5% growth in 2025. The bank also sharply reduced its forecast for the Middle East, North Africa, Afghanistan and Pakistan region by 2.7 percentage points to 1.6% in 2026, down from 4% in 2025, while noting growth in the region could rebound to 5% in 2027.
Specific country downgrades included the United Arab Emirates, where growth is now expected at 2.4% in 2026, a substantial drop from the January forecast of 5% and from the 6.2% rate recorded in 2025. Turkey's 2026 GDP growth forecast was lowered by 0.9 percentage point to 2.8%.
India remained the fastest-growing large economy in the World Bank's outlook, with GDP growth seen at 6.6% in 2026 after 7% growth in 2025. The bank reiterated that India's growth rates are expected to remain relatively high over the next two decades, according to Gill.
The World Bank's update underscores how the interaction between geopolitics, energy markets and financial sentiment can rapidly alter the global growth trajectory. The institution's scenarios point to a range of outcomes tied closely to energy prices and the potential for financial market stress, while the medium-term outlook reflects slower underlying drivers of growth.