War in the Middle East: the world economy severely penalized, inflation accelerates

The forecasts follow one another and are always more gloomy for the world economy. Middle East conflict expected to push global growth to lowest level since Covid-19 pandemic began, latest report predicts Global Economic Prospects of the World Bank. Global GDP growth, which stood at 2.9% in 2025, is expected to slow to 2.5% this year.

The war in Iran is generating higher energy prices, inflation and borrowing costs. With the closure of the Strait of Hormuz, what if “the worst disturbances subside in July“, Brent prices are expected to average $94 per barrel this year, a price 36% higher than 2025 levels. Prices for fertilizers and oil-derived products are expected to jump, with cascading effects on food prices. “Together, these pressures are pushing up global inflation, which is expected to reach 4.0% this year, up sharply from 3.3% in 2025.,” the report said.

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Inflation could even rise to 4.4% in 2026

The situation could get even worse. If disruptions in energy supply “turn out to be more serious than expected and are accompanied by significant financial stress“, inflation will rise to 4.4% and global growth could fall to just 1.3% in 2026.

Sub-Saharan Africa will particularly suffer, hit by rising food prices due to fertilizer shortages. But it is the Gulf economies directly affected by the conflict that will suffer the worst blow, their growth falling from 3.9% in 2025 to almost zero.

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While growth forecasts for two thirds of economies have been revised downwards since January, that of developing countries is expected to fall to 3.6% this year (compared to 4.4% in 2025) then return to 4.2% in 2027. For the economies of Gulf, growth will rebound to around 5% in 2027-28, with the resumption of trade and the launch of reconstructions.

At the same time, at the global level, activity will strengthen with the resumption of energy supplies and monetary easing and the strengthening of trade. Global growth should therefore rise to 2.8% in 2027.

“Lose a decade”

Au-delà de la guerre en cours, la banque s’inquiète de la « preciously perdue» for dozens of developing countries. Nearly one in two “has failed, since 2019, to make progress towards the most basic promise of development: reducing the income gap with the world’s most prosperous economies.”. At the end of the year, a quarter of developing economies will be less wealthy than in 2019, before Covid. And 19 countries still depend on foreign aid for their food supplies, while the world has rarely been as unwilling as today to show generosity, the report laments.

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Since 2010, overall public debt in developing economies has increased from less than 40% of GDP to more than 70%. However, the more a country is already in debt, the more the borrowing costs of additional debt jump, adds Indermit Gill, chief economist of the World Bank.

AI to boost productivity

However, three avenues for progress are emerging. Rapid adoption of artificial intelligence (AI) could “boost global productivity rates beyond the meager average of the 2020sHAS”. If it is well managed and if it does not increase the gap between rich and poor countries, it could usher in the 2030s “the world’s most prosperous decade since the 1970s».

Energy security is another avenue, with clean energy now as much a national security imperative as a priority for global development. This convergence could accelerate economic growth in developing countries, creating jobs and expanding access to affordable energy. Finally, regional trade, booming with a surge in regional agreements, “brings developing economies closer to each other and brings predictability through clear rules on investment, standards and services“, want to believe the authors of the report.