World Bank warns global growth to hit post-COVID low due to US-Iran war

The World Bank warned on Thursday that the conflict in the Middle East, particularly the war between the United States and Iran, is set to push global economic growth to its slowest since the COVID-19 pandemic.

In its latest Global Economic Prospects report, the Washington-based institution lowered its 2026 global growth forecast by 0.4 percentage points to 2.5%, down from the 2.9% predicted in January. The bank cited surging energy prices, rising inflation, and higher borrowing costs as key factors. The report highlighted the significant economic toll of the conflict, which remains fragile as the ceasefire between the US and Iran is tested.

The analysis warned that the outlook could deteriorate further if supply disruptions worsen. Iran’s closure of the Strait of Hormuz – a critical passage for oil and gas transit – has placed immense strain on global energy and supply chains. The World Bank estimates Brent crude will average $94 a barrel this year, 36% above last year’s average. Fertilizer prices are expected to rise sharply, with knock-on effects on food prices.

Overall, the closure of the strategic waterway will help push global inflation to 4% this year, up from 3.3% last year. However, the World Bank cautioned that if energy supply disruptions intensify, global growth could plummet to as low as 1.3% and inflation could reach 4.4%.

Developing countries are on the front line of the potential impact, the report noted. The bank has downgraded growth forecasts for two-thirds of countries since January. Global growth is expected to improve to 2.8% in 2027, but will remain 0.4 percentage points below the average of the 2010s.

World Bank Group President Ajay Banga said developing countries have faced numerous challenges over the past decade, and the key test is to protect people and preserve stability without sacrificing growth and jobs. The World Bank pledged to assist any developing country affected by the economic fallout, setting aside up to $60 billion, with the possibility of increasing support to $100 billion if the conflict persists.