Global economic impact of Iran conflict: Growth projected to be 2.5% in 2026

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The impact of the ongoing conflict in West Asia is now clearly visible on the global economy. According to the World Bank Group's latest "Global Economic Prospects" report, global economic growth is projected to decline to 2.5 percent in 2026 due to sharp increases in energy prices, rising inflation, and higher borrowing costs. This would be the lowest level of global growth since the COVID-19 pandemic.

According to the report, the global economic growth rate is expected to decline to 2.5 percent in 2026 after reaching 2.9 percent in 2025.
Although it is expected to improve slightly to 2.8 percent in 2027, it will remain significantly lower than the average growth rate of the 2010s.
The World Bank also reported that growth projections for nearly two-thirds of the world's economies have declined since January 2026.

The report states that disruptions in the Strait of Hormuz have impacted global energy markets.
This has resulted in a significant increase in oil prices.
The average price of Brent crude oil is projected to be $94 per barrel in 2026, approximately 36 percent higher than in 2025.
Rising energy costs will also impact the agricultural sector. Rising fertilizer prices could increase food costs, leading to a rise in global inflation from 3.3 percent in 2025 to 4 percent in 2026.

According to the World Bank, developing economies could be the hardest hit by this recession.
The growth rate of these countries is projected to decline from 4.4 percent in 2025 to 3.6 percent in 2026, which would be the lowest level since the pandemic.
The report warns that it may be more difficult for most developing countries, except China and India, to narrow the per capita income gap with developed economies.
The process of income convergence in these countries could be stalled for almost a decade until 2028.

Despite the global recession, South Asia will remain the world's fastest-growing region.
However, regional growth is projected to decline from 7 percent in 2025 to 6.3 percent in 2026.
It is expected to rebound to 6.9 percent in 2027.
On the other hand, the economies of West Asian and Gulf countries, most affected by the conflict, may see a sharp decline.
Gulf countries' growth rate may decline from 3.9 percent in 2025 to almost zero in 2026.
However, it is expected to pick up again in 2027-28 with reconstruction activities and improved trade.

The World Bank has warned that if there are further disruptions to energy supplies or a serious crisis in global financial markets, global growth could decline to just 1.3 percent in 2026.
In such a scenario, global inflation could rise to 4.4 percent.

To address the potential economic crisis, the World Bank Group has stated that it is prepared to provide up to $100 billion in financing, guarantees, and private sector assistance over the next 15 months.
Currently, the institution is providing immediate assistance of $50 to $60 billion, including $25 billion in pre-approved financial assistance.
World Bank Group President Ajay Banga stated that the biggest challenge facing developing countries today is ensuring people's safety, maintaining economic stability, and preserving employment and growth opportunities.
He stated that maintaining long-term growth prospects is essential despite the current crisis.

The report identifies rising public debt as a significant risk to the global economy.
Government debt in developing countries has risen from less than 40 percent of GDP in 2010 to over 70 percent now.
This is increasing borrowing costs and impacting governments' ability to invest in health, education, and infrastructure.
The World Bank advises countries to adopt stronger fiscal rules, increase domestic revenue collection, diversify their economies, and encourage private investment to better withstand future economic shocks.