The World Bank's latest Global Economic Prospects report, released June 11, projects global GDP growth will slow to 2.5 percent in 2026, down from 2.9 percent in 2025, as the Middle East conflict drives higher energy prices, steeper inflation, and increased borrowing costs. The forecast marks the weakest global expansion since the COVID-19 pandemic.
Developing economies are expected to bear the brunt of the slowdown. The World Bank projects growth in these economies will fall to a post-pandemic low of 3.6 percent in 2026, down from 4.4 percent in 2025. According to the report, aggregate government debt in developing economies has climbed from under 40 percent of GDP in 2010 to over 70 percent, sharply reducing fiscal space to respond to crises or invest in long-term development priorities.
World Bank data shows the divergence across developing regions was already evident in 2024. South Asia grew at 6.2 percent, led by India at 6.5 percent, while Sub-Saharan Africa expanded at 3.6 percent. Latin America and the Caribbean managed only 2.3 percent growth, and the Middle East and North Africa region grew at 2.1 percent. Low-income economies grew at just 2.3 percent in 2024, recovering from a contraction in 2023.
The report identifies the closure of the Strait of Hormuz as a key disruption to energy markets, with Brent crude oil prices projected to average 4 a barrel in 2026, 36 percent above 2025 levels. Fertilizer prices are also forecast to rise significantly, with knock-on effects for food prices. Global inflation is expected to rise to 4.0 percent in 2026, up from 3.3 percent in 2025.
Economies in the Gulf region directly affected by the conflict are expected to take the biggest hit, with growth tumbling from 3.9 percent in 2025 to near zero in 2026. The World Bank projects a rebound to about 5 percent in 2027-2028 as trade recovers and reconstruction begins. Sub-Saharan Africa faces pressures from high food prices driven by fertilizer supply shortages, while South Asia's growth is expected to slow from 7 percent in 2025 to 6.3 percent in 2026.
The World Bank has made up to 0-60 billion available through existing instruments to support developing countries, including 5 billion in pre-arranged financing. Over 30 countries are actively working with the institution to enhance readiness under this response plan, with potential scale-up to 0-100 billion over 15 months if the conflict persists.
The report's special focus on fiscal challenges notes that about two-thirds of developing economies are commodity exporters, yet they tend to have weaker fiscal positions due to volatile and less diversified revenues. The World Bank recommends well-designed fiscal rules, sovereign wealth funds with clear stabilization mandates, improved domestic revenue mobilization, and greater economic diversification to manage commodity price volatility.
Sources: worldbank.org
