Global Growth Decelerates: World Bank Warns Iran Conflict is Weighing on Markets, Projects Slower Trajectory

Global Growth Decelerates: World Bank Warns Iran Conflict is Weighing on Markets, Projects Slower Trajectory​

The global economy faces significant headwinds amid the ongoing geopolitical tensions. The World Bank has issued a sobering assessment, indicating that the conflict involving Iran and related regional instability is set to slow worldwide economic momentum this year.

The multilateral lender projects that the world's average growth will settle at 2.5% in 2026. This figure marks one of the weaker forecasts recorded since the intense disruption caused by the COVID-19 pandemic across global trade and economic activities.

Global Economic Outlook Slumps Amid Geopolitical Uncertainty​

The instability stemming from the Iran conflict is significantly impacting international markets. The disruption has severely affected global energy commodities, leading to sharp increases in prices across various sectors.

Energy supplies face particular peril after Iran reportedly shut down the Strait of Hormuz. This critical shipping route serves as a conduit for approximately one-fifth of the world's oil and natural gas supplies. As a direct consequence, energy prices have experienced a notable surge.

The World Bank projects that Brent crude oil will average $94 per barrel this year. This represents a 36% rise from its 2025 forecast and is roughly 50% higher than the price projection made in January.

Developing Economies Face Sharpest Setbacks​

Developing and emerging economies are expected to contend with particularly acute economic challenges. The World Bank has reduced its growth forecast for these regions by 0.4 percentage points, setting the projected figure at 3.6%. This is reported as the lowest level seen since the pandemic's onset.

The bank attributed this slowdown to developing nations, stating that the conflict has dampened confidence and weakened broader economic activity through supply disruption in energy. Furthermore, the sharp increase in energy prices is posing major difficulties for farmers.

Concerns have been raised regarding fertilizer trade passing through the Persian Gulf region. Higher input costs present a genuine risk of forcing agricultural producers to reduce their use of essential fertilizers, potentially leading to food shortages.

US and China Show Resilience Despite Global Slowdown​

The United States has maintained its resilience, avoiding any downgrade in the World Bank's outlook despite participating in regional attacks against Iran earlier this year. The lender continues to project the US economy will grow at 2.2% in 2026, a level unchanged from January but slightly higher than the 2.1% recorded for 2025.

The resilience of the US is attributed by the World Bank to its standing as a major energy producer and bolstered by strong investment in artificial intelligence along with ongoing tax cuts.

Similarly, China, the world's second-largest economy, is forecast to grow at 4.2% this year. This growth rate represents a reduction from the previous 5% projection for 2025 and is also lower than the 4.4% figure issued in January, though it remains substantially higher than the 7.7% expansion registered in 2025.

Eurozone Growth Projected to Slow Significantly​

The economic trajectory for the 20-member euro area is set for a noticeable slowdown. The region is projected to grow at just 0.8% this year. This contrasts sharply with the 1.4% growth rate that was previously forecasted for 2025, underscoring the global impact of commodity price surges and geopolitical friction.