The World Bank has lowered its forecast for global economic growth in 2026, warning that the conflict in the Middle East has delivered a fresh shock to the world economy by driving up energy prices, reigniting inflationary pressures, and raising the prospect of tighter monetary policy.

In its latest Global Economic Prospects report, the World Bank projected global growth to slow to 2.5 percent in 2026, down from 2.9 percent in 2025, marking the weakest expansion since the COVID-19 pandemic.

The slowdown reflects weaker prospects for energy-importing economies and countries directly affected by the hostilities in the Middle East, which have disrupted energy markets and heightened uncertainty across the global economy. The report noted that elevated oil and energy prices are likely to weigh on household spending, business investment, and economic activity worldwide.

Despite the weaker outlook this year, the World Bank expects growth to strengthen gradually in 2027 and 2028 as energy supplies recover, inflation pressures ease, monetary easing resumes, and global trade gains momentum.

Growth in emerging market and developing economies (EMDEs) is forecast to slow to 3.6 percent in 2026, with all developing regions expected to record weaker growth than in 2025. The bank said per-capita income growth in these economies would fall to its weakest pace since the pandemic, underscoring the challenge facing developing nations.

The report highlighted a widening development gap, noting that per-capita income levels in EMDEs excluding China and India are not expected to regain their pre-pandemic convergence path with advanced economies until after 2028. This would amount to nearly a decade of lost progress in narrowing income differences between richer and poorer nations.

The World Bank warned that risks remain heavily tilted to the downside. A further escalation of conflict in the Middle East or prolonged disruptions to commodity supplies could push energy and food prices higher, intensify inflation, trigger financial stress, and further weaken growth.

In a severe downside scenario involving larger-than-expected energy supply disruptions and significant financial market stress, global growth could slump to just 1.3 percent in 2026, the report said.

Other risks include persistent trade policy uncertainty, geopolitical tensions and weather-related shocks. However, the report identified broader investment in and adoption of artificial intelligence (AI) as a potential upside factor that could boost productivity and economic activity.

The World Bank called for stronger international cooperation to safeguard energy and food security, strengthen the global trading system, and support the energy transition. It also urged policymakers to strike a balance between controlling inflation and supporting growth while maintaining fiscal and financial stability.

Slower growth prospects are expected to translate into weaker investment, reduced hiring and tighter government finances, creating additional challenges for developing economies with rapidly expanding workforces.

"Meeting this challenge will require a concerted agenda centred on the conditions for job creation," the report said, citing investments in physical, human and digital capital, improvements in the business environment and greater mobilization of private investment as key priorities.

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