Global Economic Growth Slows to 2.5% Amid Middle East Conflict and Rising Inflation

The World Bank's Economic Outlook

The World Bank has warned that global economic growth will slow to 2.5% this year, the weakest since the Covid pandemic, due to the war in the Middle East and rising inflation. The Washington-based development bank has downgraded growth forecasts for two-thirds of countries in its half-yearly Global Economic Prospects report.

Global Economic Growth Forecast

The bank estimated that global growth was 2.7% in 2025. Even if the disruption to oil flows in the strait of Hormuz shipping channel triggered by the Iran war abates next month, the World Bank expects global inflation to rise to 4% in 2026, up significantly from 3.3% in 2025.

Impact on Developing Countries

Average fertiliser prices are expected to jump by as much as 38% this year, as a result of disruption of supplies through the strait, and shortages of the inputs for fertiliser production from the Gulf. After this latest hit to their prospects, developing countries, aside from India and China, will have endured a decade without managing to narrow the gap with advanced economies, the World Bank argued.

The World Bank's Response

The Bank said it is making up to $100bn available over the next 15 months for the countries worst affected by the knock-on effects of the war, to help them ride out the crisis. With the ceasefire between the US and Iran appearing increasingly fragile in recent days, it also warned of a further deterioration in the economic outlook.

Economic Outlook and Risks

“A renewed escalation of hostilities or more prolonged disruptions to commodity flows could further raise commodity prices, intensify inflationary pressures and food insecurity, trigger financial stress and lower growth,” it said, adding that in this downside scenario, global growth could fall to just 1.3%. The World Bank points out that since 2010, aggregate government debt in developing countries has increased from 40% of GDP to 70% of GDP.