.png)
4 hours ago
11
Global economic growth will slow to 2.5% this year as a result of the war in the Middle East – the weakest since the Covid pandemic – as inflation and borrowing costs rise, the World Bank has warned.
The Washington-based development bank has downgraded growth forecasts for two-thirds of countries in its half-yearly Global Economic Prospects report. The bank estimated that global growth was 2.7% in 2025.
Even if the disruption to oil flows in the strait of Hormuz shipping channel triggered by the Iran war abates next month, the World Bank expects global inflation to rise to 4% in 2026, up significantly from 3.3% in 2025.
Average fertiliser prices are expected to jump by as much as 38% this year, as a result of disruption of supplies through the strait, and shortages of the inputs for fertiliser production from the Gulf.
After this latest hit to their prospects developing countries, aside from India and China, will have endured a decade without managing to narrow the gap with advanced economies, the World Bank argued. It said that “barring a miracle”, the 2020s will be a “lost decade”.
The Bank said it is making up to $100bn available over the next 15 months for the countries worst affected by the knock-on effects of the war, to help them ride out the crisis.
With the ceasefire between the US and Iran appearing increasingly fragile in recent days, it also warned of a further deterioration in the economic outlook.
“A renewed escalation of hostilities or more prolonged disruptions to commodity flows could further raise commodity prices, intensify inflationary pressures and food insecurity, trigger financial stress and lower growth,” it said, adding that in this downside scenario, global growth could fall to just 1.3%.
“Developing countries have faced a series of challenges over the last decade,” said its president, Ajay Banga. “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.”
He added: “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.”
Growth in the Gulf economies is expected to fall steeply, from 4.5% last year to just 1.3% in 2026, before rebounding strongly next year as oil begins to flow again and reconstruction gets under way.
In his foreword to the report, the World Bank’s chief economist, Indermit Gill, highlights three reasons for hope that growth in developing economies could accelerate in the coming decade – increased regional trade; the clean energy revolution; and artificial intelligence.
But he warns that the benefits of AI are heavily skewed towards the rich world, with less than a quarter of datacentres currently sited in developing economies, while “the languages of roughly half the world’s people remain poorly represented in the data that trains the models”.
“Unless such gaps are closed, the AI revolution could widen rather than narrow the gap between rich and poor countries,” he added.
The report also sounds a warning about what it calls the “rising challenge” of government indebtedness in developing countries, which makes it harder for politicians to cushion the public from shocks.
The World Bank points out that since 2010, aggregate government debt in developing countries has increased from 40% of GDP to 70% of GDP – and that the higher the pre-existing debt level, the more interest rates tend to rise.
Campaigners have been calling on developed country governments to do more to help the world’s poorest countries tackle their increasingly unmanageable debt burdens. Recent research by advocacy group Development Finance International found that the G77 group of developing countries spend $8tn a year servicing their debts: 35% of government spending.
