World Bank warns Middle East war to cut 2026 growth to 1.3%

The World Bank has warned that a prolonged military conflict in the Middle East could slash global economic growth to just 1.3% in 2026, a sharp deceleration that risks triggering a period of stagflation and placing severe strain on vulnerable developing nations. The stark assessment was delivered by World Bank Chief Economist Indermit Gill, who stated that the most severe downside scenario outlined in the institution's June economic outlook is becoming increasingly plausible.

Under this scenario, which assumes hostilities persist for six months or longer, global growth would fall sharply from an estimated 2.9% in 2025. Concurrently, worldwide inflation could accelerate to about 4.5%, complicating central banks' efforts to lower interest rates and forcing policymakers to keep borrowing costs elevated. Gill warned this combination of weak growth and stubborn inflation raises the risk of a stagflation-like environment, where economies struggle with slow output while prices remain high.

The primary economic threat stems from energy market volatility and disruptions to critical shipping lanes. Recent military actions have included attacks inside Iran and renewed disruptions to oil...