Trump's Iran War Slowing Global Economic Growth to Lowest Level Since Pandemic: World Bank

The World Bank on Thursday lowered its global growth forecast for the remainder of 2026 as the illegal US-Israeli war of choice on Iran drives up energy prices, inflation, and the cost of debt.The global economy is facing another major shock, the World Bank's latest biannual Global Economic Prospects report states. The conflict in the Middle East has triggered sharp increases in energy prices, renewed inflationary pressures, and fueled expectations of tighter monetary policy.Global growth is projected to slow to 2.5 in 2026, from 2.9 in 2025—the lowest rate since the Covid-19 pandemic—amid weaker prospects for economies dependent on energy imports and those directly affected by hostilities, the report continues. Activity is expected to firm in 2027-28 as energy supplies recover, monetary easing resumes, and trade strengthens. The Iran War has resulted in the closure of the Strait of Hormuz, through which around 30 of the world’s fertilizer and 20 of its oil previously passed. In addition to increasing the risk of a global food crisis, the strait’s closure has sent fuel and fertilizer prices soaring, with US farm diesel costing nearly 50 more than it did on the war’s eve in February and various fertilizer products spiking by between one-quarter and one-half.The war has affected the economies of countries far removed from Iran, as the World Bank reports forecasts that growth in emerging market and developing economies (EMDEs) is expected to slow to 3.6 this year.The level of per capita income across EMDEs excluding China and India, relative to advanced economies, is not expected to return to the pre-pandemic level until after 2028, implying nearly a decade of lost income convergence, the international financial institution predicted.World Bank Group president Ajay Banga said in a statement Thursday that developing countries have faced a series of challenges over the last decade.“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, Banga 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. Our job is to help countries steady the ship, keep reforms moving, and emerge stronger on the other side.”The bank said in April that up to 100 billion would be made available over the next 15 months for nations suffering the most acute economic shocks caused by the war.As US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu allegedly undermine efforts to end the war, the World Bank cautions that the global economic outlook remains skewed to the downside.“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,” the bank's report warns.In his foreword to the new Global Economic Prospects report, World Bank Group chief economist Indermit Gill warned that barring a miracle, the 2020s will prove to be what their ominous opening foreshadowed: a lost decade—not just for a couple of outliers, but for dozens of developing economies.'Amid one of the densest clusters of global shocks since the 1970s, nearly 1 out of every 2 developing economies has failed since 2019 to advance on the most rudimentary promise of development: narrowing the income gap with the world’s most prosperous economies, Gill added. For light at the end of the tunnel, you’d have to look to the 2030s.