World Bank cuts 2026 global growth forecast to post-pandemic low of 2.5% on Iran war

The World Bank slashed its forecast for global economic growth on June 11, warning that the conflict in the Middle East had delivered a fresh shock to the world economy through higher energy prices, renewed inflation and the prospect of tighter monetary policy. In its semi-annual Global Economic Prospects report, the institution said worldwide growth was now expected to slow to 2.5% in 2026, down from 2.9% in 2025 and the weakest pace since the COVID-19 pandemic, with global headline inflation averaging around 4%.

The downgrade, trimmed by 0.1 percentage point from the bank's January projection, reflected the fallout from a war that erupted with US and Israeli strikes on Iran in late February and has since dragged into its fourth month. The bank lowered its growth estimates for roughly two-thirds of the world's economies, attributing the revisions to the disruption of energy supplies and the sharp rise in prices that have dented confidence and weighed on activity across much of the globe.

Developing and emerging-market economies were singled out as bearing the heaviest burden. The bank cut their collective 2026 growth forecast by 0.4 percentage points to a post-pandemic low of 3.6%, down from 4.4% in 2025. The steepest regional downgrade fell on the Middle East, North Africa, Afghanistan and Pakistan, where the projection was lowered by 2.7 percentage points to 1.6%, with energy exporters such as the United Arab Emirates and Iraq among the hardest hit by the conflict.

Among the major economies, the picture was uneven. The United States escaped a downgrade, with growth held at 2.2% for 2026 before easing toward 2% by 2028; the bank noted that as a large energy producer, the US is more insulated than oil-importing nations and is being supported by tax cuts and heavy investment in artificial intelligence. The euro area, by contrast, was seen growing just 0.8% this year, down sharply from 1.4% in 2025, while Japan's expansion was trimmed to 0.7%. China was projected to grow 4.2%, a downward revision, and India was expected to remain the fastest-growing major economy at 6.6%, albeit slower than the prior year.

The report's baseline rested on assumptions that could prove optimistic. It anticipated Brent crude averaging around $94 a barrel over 2026 and the worst of the energy-supply disruptions abating by July. Should those conditions fail to hold, the bank sketched a darker scenario in which deeper supply disruptions combined with substantial financial-market stress could drag global growth down to as little as 1.3%, with headline inflation averaging closer to 4.4%.

To cushion the blow for the most exposed economies, the bank said it was making up to $60 billion immediately available to the hardest-hit developing countries, a figure that could rise to $100 billion over 15 months. President Ajay Banga said the institution was supplying liquidity where it was most needed and stood ready to provide further financing, guarantees and private-sector support if pressures intensified.

The bank's leadership framed the moment in stark terms. Chief economist Indermit Gill warned in his foreword that the decade was at risk of becoming a "lost" one for dozens of developing economies, noting that nearly half had failed since 2019 to narrow the income gap with the world's wealthiest nations. The assessment underscored how the energy shock has compounded a longer run of disappointing growth across much of the developing world.

For markets, the report reinforced the through-line that has dominated 2026: an energy-driven inflation impulse colliding with slowing growth and forcing central banks into difficult trade-offs. With the ceasefire between the United States and Iran still being tested and the path of oil prices uncertain, the World Bank's downgrade served as a reminder that the macroeconomic costs of the conflict are likely to linger well beyond any eventual settlement.