The World Bank has downgraded its global economic growth forecast for 2026 to 2.5%, issuing a stark warning that a deeper slowdown may be imminent if the energy crisis intensifies. The revised projection, released Thursday, June 11, in the institution's Global Economic Prospects report, represents a significant drop from its earlier estimate and signals that the post-pandemic recovery is losing momentum. According to the bank, the ongoing war in the Middle East is the primary driver behind the revision, as the conflict has driven up energy prices, reignited inflation, and heightened uncertainty in financial markets. The new figure indicates that two-thirds of economies have seen their forecasts reduced since January, underscoring that the problem has become global rather than localized.
The Energy Shock and Middle East Conflict at the Core
The downward revision is anchored in the escalating turmoil in the Middle East, which has triggered a sharp spike in energy costs. The World Bank estimates that Brent crude will average $94 per barrel this year, a 36% increase over 2025 levels, assuming that major delivery disruptions ease by July. However, the institution made clear that the scenario could deteriorate rapidly if risks persist. Beyond oil, the report also cited rising fertilizer prices as an additional pressure point, impacting agricultural production, food costs, and the budgets of households and governments alike. The disruption of strategic routes, notably the Strait of Hormuz, has raised the risk of disorganization in oil and gas flows, making international transport more expensive and reducing predictability for businesses and governments.
Worst-Case Scenarios and Vulnerability
The baseline projection assumes a more intense disruption lasting until July, but the situation could worsen if the shock is prolonged. In a more severe scenario, global growth could fall to 2.1% and inflation rise to 4.4%, with Brent averaging $115 per barrel. In an even more extreme hypothesis affecting financial markets, the world economy could decelerate to just 1.3%. Energy-importing countries are especially vulnerable, as their external accounts swell, trade deficits worsen, and fiscal pressure intensifies. The bank's analysis highlights that the global economy is markedly less resilient today than it was in 2008 or even 2018, a reflection of cumulative crisis effects that have not been fully absorbed.
Inflation Accelerates and Pressures Central Banks
The report also drew attention to the global inflation projection of 4.0% for 2026, up from 3.3% in 2025. The World Bank states that disinflation has lost pace, primarily due to the energy shock stemming from Middle East tensions. Higher oil prices quickly ripple through transportation, food, industry, shipping, and final prices of goods and services. This dynamic is forcing central banks to maintain higher interest rates for longer, making credit more expensive and curbing consumption. The report emphasizes that public policy will need to balance two competing priorities: combating inflation while preserving some degree of support for growth. The tension between these objectives is expected to dominate economic decision-making throughout the year.
Fertilizer Costs Add to Strain on Agriculture
In addition to energy, the World Bank pointed to rising fertilizer prices as a compounding factor. Higher input costs for farmers are squeezing agricultural output, pushing up food prices globally. This adds another layer of pressure on household budgets, particularly in low-income nations where food represents a larger share of spending. The combination of expensive energy and fertilizers creates a feedback loop that undermines economic stability and complicates the fight against inflation.
Emerging Economies Face the Brunt of the Slowdown
Developing economies are among the hardest hit by the new reality. The growth forecast for these nations has been cut to 3.6% in 2026, the weakest level since the post-pandemic period. The World Bank observes that many low- and middle-income countries have yet to recover the ground lost in recent years, and weak growth is stalling the convergence of income levels between emerging and advanced economies. This means the gap between rich and poor regions could remain wide for longer. When emerging economies grow less, international trade loses traction and pressure on local currencies increases, as investors flock to safer assets during periods of volatility. The report underscores that this divergence exacerbates global inequality and limits the potential for a balanced worldwide recovery.
Regional Divergence: US, Europe, China, and India
The World Bank's outlook reveals uneven effects across major economies. The United States' growth forecast remains unchanged at 2.2% for 2026, while the eurozone is expected to expand by only 0.8%, down from 1.4% in 2025. Japan is also set to lose momentum, with an estimated growth of 0.7%. China's projection has been reduced to 4.2%, after growing 5% in 2025. On the other hand, India stands out as a positive exception, with a forecast of 6.6% growth in 2026, maintaining its status as the world's most dynamic major economy. However, even India is not immune to the weaker international environment, as trade, energy prices, and global interest rate dynamics also affect its performance. The report emphasizes that no country is fully insulated from the current headwinds.
Outlook for 2027–2028: Slow Recovery or More Risks?
Despite the cautious tone, the World Bank projects some improvement starting in 2027. It expects global growth of 2.8% in both 2027 and 2028, though that remains below the average of 3.2% seen in the 2010s. The institution states that the world economy is less resilient now than in 2008 and also less than in 2018, indicating that the cumulative effects of recent crises have not been fully absorbed. Factors explaining this fragility include slowing population growth, lower private investment, declining public investment, high public debt, and a loss of momentum in international trade. The report also noted that broader adoption of artificial intelligence could provide some relief in the medium term, but it would not be enough to fully offset the short-term risks posed by expensive energy, higher inflation, and geopolitical uncertainty. The 2.5% forecast signals that the global economy has entered a phase of greater caution, where volatility is likely to dominate.