Navigating Global Economic Challenges: World Bank's Outlook for 2026
Global economic growth is expected to slow down to 2.5% this year due to the ongoing war in the Middle East, according to the World Bank. This marks the weakest growth rate since the Covid pandemic. The bank has revised its growth forecasts for two-thirds of countries in its latest Global Economic Prospects report. It estimates that global growth was at 2.7% in 2025. Despite potential easing of disruptions in the oil supply chain, the World Bank anticipates global inflation to rise to 4% in 2026, up from 3.3% in 2025.
The war in the Middle East has led to disruptions in the supply chain, causing average fertiliser prices to surge by up to 38% this year. Developing countries, with the exception of India and China, are facing challenges in narrowing the gap with advanced economies. The World Bank has expressed concerns that the 2020s could be a "lost decade" for these countries. To support the countries most affected by the war's repercussions, the World Bank has allocated up to $100 billion over the next 15 months to help them navigate through the crisis.
The World Bank warns of a potential further deterioration in the economic outlook if hostilities escalate or commodity flows are disrupted. In a downside scenario, global growth could plummet to just 1.3%. Developing countries have been grappling with various challenges over the past decade, and the World Bank emphasizes the importance of protecting people and stability while also focusing on growth and job creation. The bank is prepared to provide additional financing, guarantees, and private-sector solutions if the pressures deepen.
Growth in Gulf economies is projected to decline sharply from 4.5% in the previous year to 1.3% in 2026, before rebounding in the following year as oil production resumes and reconstruction efforts begin. The World Bank's chief economist highlights reasons for hope in accelerating growth in developing economies, including increased regional trade, the clean energy revolution, and artificial intelligence. However, he cautions that the benefits of AI are currently skewed towards the rich world, potentially widening the gap between rich and poor countries.
The report also raises concerns about the rising challenge of government indebtedness in developing countries, which could hinder policymakers' ability to mitigate shocks. Government debt in developing countries has increased significantly since 2010, reaching 70% of GDP on aggregate. The World Bank emphasizes the importance of addressing these debt burdens to ensure sustainable economic growth. Developed countries are urged to provide more support to help the world's poorest countries manage their debt obligations effectively.