World Bank slashes global growth forecast, ready to deploy $ 100 b

The World Bank Group has sharply downgraded its global growth outlook, warning that the escalating conflict in the Middle East will push global economic expansion to its weakest level since the COVID-19 pandemic, as higher energy prices, rising inflation and tighter financial conditions weigh on economies worldwide.

In its latest Global Economic Prospects report released on Thursday, the World Bank forecast global growth to slow to 2.5% in 2026 from 2.9% in 2025, with forecasts for nearly two-thirds of economies revised downward since January.

While growth is projected to recover modestly to 2.8% in 2027, it will remain 0.4 percentage points below the average recorded during the 2010s, highlighting the lasting economic scars from successive global shocks.

The report warned that developing economies continue to face significant challenges, with growth expected to slow to a post-pandemic low of 3.6% in 2026 from 4.4% in 2025 before recovering to 4.2% in 2027.

“Developing countries have faced a series of challenges over the last decade,” World Bank Group President Ajay Banga said. “The impact differs by country, but the basic test is the same: protect people and preserve stability today, without giving up on growth and jobs tomorrow.”

According to the report, the closure of the Strait of Hormuz has severely disrupted global energy markets, with Brent crude prices now expected to average $ 94 per barrel in 2026, representing a 36% increase over 2025 levels, assuming major supply disruptions ease by July.

The Bank also warned of a significant rise in fertiliser prices, with knock-on effects on global food costs. Combined with higher energy prices, these developments are expected to push global inflation to 4% in 2026 from 3.3% last year.

The World Bank cautioned that risks remain heavily tilted to the downside. In a more severe scenario involving prolonged energy supply disruptions and financial market stress, global growth could slow to just 1.3% in 2026 while inflation could accelerate further to 4.4%.

Among regions, the Middle East, North Africa, Afghanistan, and Pakistan are expected to suffer the sharpest slowdown, with growth forecast to plunge from 3.9% in 2025 to 1.6% in 2026 before rebounding to 5% in 2027 as reconstruction spending gathers pace and trade flows normalise.

South Asia is projected to remain the world’s fastest-growing region, although growth is expected to moderate to 6.3% in 2026 from 7% in 2025 before recovering to 6.9% in 2027.

The report also highlighted growing vulnerabilities stemming from rising public debt burdens. Aggregate government debt across developing economies has climbed from less than 40% of GDP in 2010 to more than 70% of GDP today, increasing borrowing costs and limiting governments’ ability to respond to future crises.

The World Bank noted that countries with elevated debt burdens face disproportionately higher financing costs, underscoring the importance of restoring fiscal buffers and reducing debt levels to create room for investment in infrastructure, healthcare and education.

The report also pointed to the challenges facing commodity-exporting economies, which account for roughly two-thirds of developing countries and nearly 90% of low-income nations. While commodity price booms can generate substantial revenue windfalls, much of these gains are often spent rather than saved, leaving countries vulnerable when prices reverse.

To manage volatility, the World Bank recommended stronger fiscal frameworks, sovereign wealth funds with stabilisation mandates, improved domestic revenue mobilisation and greater economic diversification.

Against the backdrop of the Middle East crisis, the World Bank announced that it is immediately making available $ 50-60 billion through existing financing instruments, including $ 25 billion in pre-arranged financing, to help countries strengthen social safety nets, support fiscal capacity, and provide liquidity to businesses and farms.

More than 30 countries are already working with the World Bank under the emergency response framework. If the conflict and its economic fallout persist, the institution said it stands ready to scale up support to between $ 80 billion and $ 100 billion over the next 15 months.

World Bank Deputy Chief Economist and Prospects Group Director Ayhan Kose said the crisis also presents an opportunity for reform.

“The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” he said. “This moment should be used to strengthen policy frameworks, invest in infrastructure, accelerate business-enabling reforms, and mobilise private capital to support job creation at scale,” he said.