Warnings get louder: World Bank joins IMF, OECD in flagging weaker global economy

The World Bank cut its forecast for global growth in 2026 to 2.5 per cent, the lowest rate since the Covid-19 pandemic.

The World Bank has become the latest institution to lower its outlook for the global economy, adding to a growing number of warnings from the International Monetary Fund and the Organisation for Economic Co-operation and Development.

In its latest Global Economic Prospects report, the World Bank cut its forecast for global growth in 2026 to 2.5 per cent, the lowest rate since the Covid-19 pandemic and down from the 2.6 per cent projected earlier this year. The report focusses on the economic fallout from the conflict in the Middle East.

Growth across developing economies has been revised down from four per cent to 3.6 per cent. In comparison, growth in developing economies excluding China and India has been cut from 3.3 per cent to 2.6 per cent.

The uneven recovery from the pandemic remains a concern. The World Bank estimates that by the end of 2026, about one-quarter of developing economies, one-third of low-income economies and half of fragile and conflict-affected economies will still be poorer than they were before the pandemic.

CONFLICT DRIVES UP COMMODITY PRICES

The World Bank's biggest concern is the sharp rise in commodity prices following the conflict in the Middle East. Instead of falling by seven per cent this year as expected in January, commodity prices are now projected to rise by 22 per cent.

Brent Crude is expected to average $94 a barrel in 2026. That’s 36 per cent higher than last year and more than 50 per cent above the bank's January forecast. Natural gas prices in Europe are expected to rise by about 30 per cent, while fertiliser prices have also surged as the conflict disrupted supplies from the Gulf region and pushed up the cost of natural gas.

HIGHER ENERGY PRICES PUSH UP INFLATION

Before the conflict, global inflation had been largely stable. Headline inflation fell from three per cent in November 2025 to 2.7 per cent in February 2026, while core inflation remained steady at around 2.6–2.8 per cent. That changed after energy prices surged.

Global headline inflation jumped to 3.5 per cent in April 2026. Core inflation, which excludes food and energy prices, remained almost unchanged. The gap suggests that higher oil and gas prices are beginning to feed into consumer prices. In all, global headline inflation is projected to rise to four per cent this year.

WHAT WORRIES THE WORLD BANK

The World Bank says the biggest risk is a fresh surge in energy prices. In its worst-case scenario, where energy supply disruptions intensify and trigger financial market stress, global growth could fall to 1.3 per cent in 2026. Meanwhile, inflation could climb to 4.4 per cent, a rise of 0.4 percentage points.

The forecast assumes that the worst phase of the disruption ends by July and that shipping through the Strait of Hormuz gradually returns to normal. However, if the conflict continues to disrupt oil and gas supplies, prices could stay high for longer. That would make inflation harder to control and further weaken global growth.

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