World Bank Cuts Growth Outlook as Middle East War Strains Global Economy

Global economic growth is projected to slide to 2.5% in 2026, marking its weakest performance since the pandemic. The World Bank warns that the ongoing conflict involving Iran and the resulting closure of the Strait of Hormuz have triggered a surge in energy prices, debt costs, and widespread inflationary pressure.

The latest Global Economic Prospects report paints a bleak picture of a recovery derailed by geopolitical instability. With roughly 20% of the world’s oil and 30% of its fertilizer supply typically moving through the Strait of Hormuz, the maritime blockage has hit agricultural markets hard. US farm diesel prices have climbed nearly 50% since February, while fertilizer costs have jumped by as much as half, threatening global food security.

Developing nations face the most severe consequences. Growth in emerging market and developing economies is expected to slow to 3.6% this year, with many countries struggling to close the income gap with wealthier nations. World Bank Group chief economist Indermit Gill suggested that the 2020s are shaping up to be a “lost decade” for development, with nearly half of all developing economies failing to narrow their prosperity gap since 2019. While World Bank president Ajay Banga pledged to offer liquidity and up to $100 billion in financing to stabilize the most vulnerable nations, the institution cautions that the outlook remains skewed to the downside as long as hostilities persist.