World Bank lowers global growth forecast on Iran war impacts

WASHINGTON: The World Bank on Thursday cut its global growth forecast for 2026 to 2.5 percent due to the war in the Middle East, and said growth could slow to just 1.3 percent if energy supply disruptions prove more severe and come with substantial stress in financial markets.

Global growth reached 2.9 percent in 2025, the bank said in its semi-annual Global Economic Prospects, up 0.2 percentage point from its estimate in January. Its 2026 forecast is down 0.1 percentage point from January, the lowest seen since the COVID pandemic that began in late 2019.

The bank lowered forecasts for two-thirds of countries as a result of the war, with the biggest cuts affecting the United Arab Emirates, Iraq and other countries in the Middle East whose energy exports have been hit hard by the conflict.

READ MORE: Middle East war to cut growth, deliver cascading impact, World Bank chief says

The World Bank’s stark outlook comes as the war launched by US and Israeli strikes on Iran on February 28 drags into a fourth month. It has sent energy prices up sharply due to the closure of the Strait of Hormuz, renewed inflationary pressures worldwide and fueled expectations of tighter monetary policy across many countries. Fertilizer prices are also up sharply, raising concerns about a major food supply crisis. Oil prices closed nearly $2 higher on Wednesday after US President Donald Trump said the US 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 said its baseline forecast assumed an average Brent crude oil price of $94 for the year, up 36 percent from 2025, and that the worst disruptions to energy supplies would abate by the end of July, with global headline inflation seen at 4 percent.

It said growth could slow to 2.1 percent if the energy disruptions lasted longer and oil prices averaged $115 per barrel this year, which could drive inflation to 4.4 percent. The outlook would worsen further, with growth decelerating to just 1.3 percent, if the energy shock affected financial markets, resulting in lower energy prices, greater volatility and weaker confidence, it said. “These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other,” Ayhan Kose, the World Bank’s deputy chief economist, said. If the energy shock triggered a financial market shock, confidence could erode quickly, he said.