.Global growth to slow 2.5%, lowest rate since COVID-19
The World Bank Group yesterday expressed its readiness to provide up to $100 billion for countries affected by the Middle East crisis.
The fund will be delivered in the next 15 months to the beneficiary countries.
The bank reiterated its commitment at supporting all developing countries as they confront crises. In response to the conflict in the Middle East, it is immediately making up to $50–60 billion available through existing instruments, including $25 billion of pre-arranged financing.
This can support social safety nets for the most vulnerable people, boost fiscal capacity, and provide working capital and liquidity support for firms and farms.
“Developing countries have faced a series of challenges over the last decade,” said Ajay Banga, President of the World Bank Group.
“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. In response to the current shock, we are providing liquidity where it is needed now — and we are ready with additional financing, guarantees, and private-sector solutions if pressures deepen. Our job is to help countries steady the ship, keep reforms moving, and emerge stronger on the other side.”
To date, over 30 countries are actively working with the World Bank Group to enhance readiness and enable a rapid response to the crisis under this response plan. If the conflict and its economic fallout persist, the World Bank Group can scale up its support to $80–100 billion over 15 months.
The conflict is expected to slow global growth to the lowest rate since the onset of the COVID-19 pandemic amid higher energy prices, steeper inflation, and increased borrowing costs, according to the World Bank Group’s latest Global Economic Prospects report.
Global growth is forecast to slow to 2.5 per cent in 2026, down from 2.9 per cent in 2025. Forecasts for two-thirds of economies have been downgraded relative to January of this year.
Global growth is expected to improve to 2.8 per cent in 2027 but will remain 0.4 percentage point below the average during the 2010s.
Weak growth in developing economies has stalled progress toward advanced-economy income levels. By 2028, developing economies other than China and India will have collectively experienced nearly a decade of no progress on narrowing their per capita income gap with advanced economies, the report finds.
According to the report, the closure of the Strait of Hormuz has severely disrupted energy markets, with Brent crude oil prices projected to average $94 a barrel in 2026, 36 per cent above 2025 levels, assuming the worst disruptions abate in July.
Fertilizer prices are forecast to increase significantly this year, with knock-on effects for food prices. Together, these pressures are pushing up global inflation, which is expected to rise to four per cent this year, up substantially from 3.3 per cent in 2025.
Yet downside risks are significant. If energy supply disruptions prove more severe than currently assumed and are accompanied by substantial financial stress, global growth could fall to just 1.3 per cent in 2026, and inflation would rise to 4.4 per cent.
This year, growth in developing economies is expected to drop to a post-pandemic low of 3.6 per cent, down from 4.4 per cent in 2025, before recovering to 4.2 per cent in 2027.
Economies in the Gulf that are directly affected by the conflict are expected to take the biggest hit as their growth tumbles from 3.9 per cent in 2025 to close to zero in 2026. The report predicts growth will rebound in these economies—to about five per cent in 2027–28—as trade recovers and spending on reconstruction begins.
South Asia is expected to see the strongest growth of any region in 2026, but even its growth will register a significant slowdown—from 7% in 2025 to 6.3% in 2026, the report finds. Sub-Saharan Africa’s growth is also slowing, with the biggest pressures coming through inflation, including high food prices due to the fertilizer supply shortages and price hikes.
“The conflict has taken a toll on global activity, but every crisis also brings an opportunity,” said Ayhan Kose, the World Bank Group’s Deputy Chief Economist and Director of the Prospects Group. “This moment should be used to strengthen policy frameworks, invest in infrastructure, accelerate business-enabling reforms, and mobilize private capital to support job creation at scale.”
The report’s special-focus chapters examine fiscal challenges in developing economies. About two-thirds of developing economies—and nearly 90 per cent of low-income countries—are commodity exporters.
Yet these economies tend to have weaker fiscal positions than other developing economies, as they face more volatile and less diversified revenues. Five years after a positive commodity price shock, much of the revenue windfall is spent, rather than saved to strengthen fiscal positions. To manage commodity price volatility, policy makers should rely on frameworks, such as well-designed fiscal rules and sovereign wealth funds with clear stabilization mandates, alongside improved domestic revenue mobilization and greater economic diversification.
The other chapter explores how rising debt levels are making it harder for countries to respond to crises and invest in long-term development priorities—and driving up borrowing costs in the process. Since 2010, aggregate government debt in developing economies has climbed from under 40 per cent of GDP to over 70 per cent. The analysis finds that the more indebted a country already is, the more sharply its borrowing costs rise with additional debt. The effect is particularly acute in more vulnerable countries.
For countries with elevated debt-to-GDP ratios, reducing debt levels can yield meaningful financial rewards: greater fiscal space to invest in infrastructure, health, and education, fueling economic growth and job creation.