World Bank: Global growth to fall to 2.5% in 2026, the lowest since the pandemic.
2026-06-12 10:35:16
The World Bank on Thursday (June 11) lowered its global economic growth forecast for 2026 to 2.5%, citing the ongoing impact of the Middle East wars.
The report warns that global economic growth could slow to 1.3% if energy supply disruptions worsen and put significant pressure on financial markets. This would be the lowest level since the outbreak of the COVID-19 pandemic in late 2019. The global economic growth rate for 2025 has been revised to 2.9%, an upward revision of 0.2 percentage points from the January forecast.
Due to the impact of the Middle East conflict, the World Bank lowered its growth forecasts for two-thirds of the countries.
As the World Bank released its pessimistic forecast, the situation between the US and Iran took a dramatic turn in the past 24 hours.
US President Trump announced on social media on Thursday that he had canceled the planned strikes and bombings against Iran that evening, given that the results of consultations with Iran had been submitted to and approved by Iran's top leadership.
Trump later stated at the White House that the US and Iran had reached a "very strong memorandum of understanding," and the agreement could be signed in Europe this weekend.
However, an Iranian Foreign Ministry spokesperson immediately responded that Iran has not yet reached a final conclusion on the Iran-US agreement, and all reports about the agreement are speculation, with no details yet finalized.
The World Bank's baseline forecast assumes that the average price of Brent crude oil in 2026 will be approximately $94 per barrel, a 36% increase from 2025; the most severe energy supply disruptions will ease by the end of July; and the global overall inflation rate is projected to be around 4%.
The World Bank points out that if energy supply disruptions persist longer, with oil prices averaging $115 per barrel in 2026, global economic growth could slow to 2.1% and inflation could rise to 4.4%. If the energy shock further impacts financial markets, leading to increased price volatility and weakened confidence, the economic outlook will deteriorate further, with growth potentially falling to 1.3%.
This extreme scenario is just one step away from a global recession—according to the International Monetary Fund's definition, global economic growth below 2% is considered to be in recession territory.
World Bank Deputy Chief Economist Ayhan Kose stated, "These risk scenarios suggest that the economic outlook could deteriorate rapidly if energy and financial stresses combine." He pointed out that market confidence could decline quickly should an energy shock trigger turmoil in financial markets.
Kose further explained that the biggest risk facing the global economy currently lies in the uncertainty of the "transmission chain": rising energy prices first push up production and transportation costs, forcing companies to raise prices or cut profits, leading to a decline in consumer purchasing power and ultimately resulting in stagflation characterized by both shrinking demand and high inflation. More worryingly, if the energy shock is compounded by severe volatility in financial markets—such as a sovereign debt crisis or capital flight from emerging markets—policymakers will face a dilemma: raising interest rates to combat inflation could exacerbate the economic recession, while remaining inactive could lead to runaway inflation expectations.
The World Bank called on countries to strengthen policy coordination and reserve sufficient fiscal and monetary policy tools to cope with potentially more severe shocks.
World Bank Chief Economist Indermit Gill stated that global economic growth is projected to rebound to 2.8% in 2027 and 2028, but will still be 0.4 percentage points lower than the average level of the 2010s. Behind this seemingly small gap lie deep-seated structural problems in the global economy. Gill pointed out that factors dragging down long-term growth include: a slowing population growth leading to a contraction in labor supply; a decline in private investment growth reflecting insufficient business confidence; reduced public investment constraining infrastructure upgrades; rising public debt squeezing fiscal space; and slowing trade growth eroding the benefits of globalization. These factors intertwine, forming a headwind that suppresses growth potential.
"The world economy is far less resilient today than it was in 2008, or even 2018," Gill stated. He explained that after the 2008 financial crisis, governments and central banks had ample fiscal and monetary policy space to address the crisis; however, today, interest rates in many countries are high, public debt levels are at record levels, and the policy toolbox is clearly stretched thin. If a new shock arrives, policymakers will face a "no ammunition" dilemma.
Gill predicts that the coming years will be characterized by high policy uncertainty, persistent inflationary pressures, and high interest rates. This means the world may be entering a macroeconomic environment drastically different from the past decade—the "golden age" of low inflation, low interest rates, and high growth has ended, replaced by a "new normal" of high volatility, high debt, and low growth. Countries need to re-examine the coordination mechanisms of fiscal and monetary policies to address this more challenging long-term landscape.
The report points out that developing economies are more severely impacted by war, with a projected growth rate of 3.6% in 2026, the lowest level since the pandemic, down from 4.4% in 2025. Apart from China and India, dozens of developing countries face a “lost decade,” making little progress in narrowing the per capita income gap with developed economies.
Forecasts for major economies:
United States: Growth of 2.2% in 2026, slowing to 2.1% in 2027, and further declining to 2% in 2028.
Eurozone: 0.8% growth in 2026, down from 1.4% in 2025.
Japan: Growth of 0.7% in 2026, lower than the 1.1% in 2025.
China: Growth of 4.2% in 2026, revised down 0.2 percentage points from the previous forecast; 5% in 2025.
India: Growing at 6.6% in 2026 and 7% in 2025, remaining the world's fastest-growing major economy.
The 2026 GDP growth forecast for the Middle East, North Africa, Afghanistan, and Pakistan has been significantly lowered by 2.7 percentage points to 1.6%, down from 4% in 2025. Specifically, the UAE's 2026 economic growth rate is projected at 2.4%, far below the 5% forecast in January and 6.2% in 2025. Turkey's 2026 growth forecast has been lowered by 0.9 percentage points to 2.8%.
The World Bank projects that growth in the region could rebound to 5% in 2027.
The report warns that global economic growth could slow to 1.3% if energy supply disruptions worsen and put significant pressure on financial markets. This would be the lowest level since the outbreak of the COVID-19 pandemic in late 2019. The global economic growth rate for 2025 has been revised to 2.9%, an upward revision of 0.2 percentage points from the January forecast.
Due to the impact of the Middle East conflict, the World Bank lowered its growth forecasts for two-thirds of the countries.
Geopolitical Conflict Background and Oil Price Assumptions
As the World Bank released its pessimistic forecast, the situation between the US and Iran took a dramatic turn in the past 24 hours.
US President Trump announced on social media on Thursday that he had canceled the planned strikes and bombings against Iran that evening, given that the results of consultations with Iran had been submitted to and approved by Iran's top leadership.
Trump later stated at the White House that the US and Iran had reached a "very strong memorandum of understanding," and the agreement could be signed in Europe this weekend.
However, an Iranian Foreign Ministry spokesperson immediately responded that Iran has not yet reached a final conclusion on the Iran-US agreement, and all reports about the agreement are speculation, with no details yet finalized.
The World Bank's baseline forecast assumes that the average price of Brent crude oil in 2026 will be approximately $94 per barrel, a 36% increase from 2025; the most severe energy supply disruptions will ease by the end of July; and the global overall inflation rate is projected to be around 4%.
Risk scenario: Energy shocks coupled with financial pressures could reduce growth to 1.3%.
The World Bank points out that if energy supply disruptions persist longer, with oil prices averaging $115 per barrel in 2026, global economic growth could slow to 2.1% and inflation could rise to 4.4%. If the energy shock further impacts financial markets, leading to increased price volatility and weakened confidence, the economic outlook will deteriorate further, with growth potentially falling to 1.3%.
This extreme scenario is just one step away from a global recession—according to the International Monetary Fund's definition, global economic growth below 2% is considered to be in recession territory.
World Bank Deputy Chief Economist Ayhan Kose stated, "These risk scenarios suggest that the economic outlook could deteriorate rapidly if energy and financial stresses combine." He pointed out that market confidence could decline quickly should an energy shock trigger turmoil in financial markets.
Kose further explained that the biggest risk facing the global economy currently lies in the uncertainty of the "transmission chain": rising energy prices first push up production and transportation costs, forcing companies to raise prices or cut profits, leading to a decline in consumer purchasing power and ultimately resulting in stagflation characterized by both shrinking demand and high inflation. More worryingly, if the energy shock is compounded by severe volatility in financial markets—such as a sovereign debt crisis or capital flight from emerging markets—policymakers will face a dilemma: raising interest rates to combat inflation could exacerbate the economic recession, while remaining inactive could lead to runaway inflation expectations.
The World Bank called on countries to strengthen policy coordination and reserve sufficient fiscal and monetary policy tools to cope with potentially more severe shocks.
Long-term outlook: Growth rate lower than the previous decade
World Bank Chief Economist Indermit Gill stated that global economic growth is projected to rebound to 2.8% in 2027 and 2028, but will still be 0.4 percentage points lower than the average level of the 2010s. Behind this seemingly small gap lie deep-seated structural problems in the global economy. Gill pointed out that factors dragging down long-term growth include: a slowing population growth leading to a contraction in labor supply; a decline in private investment growth reflecting insufficient business confidence; reduced public investment constraining infrastructure upgrades; rising public debt squeezing fiscal space; and slowing trade growth eroding the benefits of globalization. These factors intertwine, forming a headwind that suppresses growth potential.
"The world economy is far less resilient today than it was in 2008, or even 2018," Gill stated. He explained that after the 2008 financial crisis, governments and central banks had ample fiscal and monetary policy space to address the crisis; however, today, interest rates in many countries are high, public debt levels are at record levels, and the policy toolbox is clearly stretched thin. If a new shock arrives, policymakers will face a "no ammunition" dilemma.
Gill predicts that the coming years will be characterized by high policy uncertainty, persistent inflationary pressures, and high interest rates. This means the world may be entering a macroeconomic environment drastically different from the past decade—the "golden age" of low inflation, low interest rates, and high growth has ended, replaced by a "new normal" of high volatility, high debt, and low growth. Countries need to re-examine the coordination mechanisms of fiscal and monetary policies to address this more challenging long-term landscape.
Developing economies: Facing a "lost decade"
The report points out that developing economies are more severely impacted by war, with a projected growth rate of 3.6% in 2026, the lowest level since the pandemic, down from 4.4% in 2025. Apart from China and India, dozens of developing countries face a “lost decade,” making little progress in narrowing the per capita income gap with developed economies.
Forecasts for major economies:
United States: Growth of 2.2% in 2026, slowing to 2.1% in 2027, and further declining to 2% in 2028.
Eurozone: 0.8% growth in 2026, down from 1.4% in 2025.
Japan: Growth of 0.7% in 2026, lower than the 1.1% in 2025.
China: Growth of 4.2% in 2026, revised down 0.2 percentage points from the previous forecast; 5% in 2025.
India: Growing at 6.6% in 2026 and 7% in 2025, remaining the world's fastest-growing major economy.
Middle East: Largest downward adjustment
The 2026 GDP growth forecast for the Middle East, North Africa, Afghanistan, and Pakistan has been significantly lowered by 2.7 percentage points to 1.6%, down from 4% in 2025. Specifically, the UAE's 2026 economic growth rate is projected at 2.4%, far below the 5% forecast in January and 6.2% in 2025. Turkey's 2026 growth forecast has been lowered by 0.9 percentage points to 2.8%.
The World Bank projects that growth in the region could rebound to 5% in 2027.
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