The World Bank has lowered economic growth projections across several regions, warning that ongoing conflict in the Middle East is disrupting global stability. The revised outlook signals growing concern among policymakers and investors.
Conflict Creates Immediate Economic Shock
According to the latest regional economic updates, the conflict has already affected markets and trade flows. The closure of the Strait of Hormuz has disrupted energy shipments and increased uncertainty. Consequently, financial volatility has risen across global markets.
Infrastructure damage in affected areas has also weakened economic activity. Energy facilities and public assets have suffered losses, which has slowed production and investment confidence. As a result, the global economic outlook for 2026 has deteriorated.
Middle East and Neighboring Regions Face Strongest Impact
The World Bank noted that economies in the Middle East, North Africa, Afghanistan, and Pakistan face significant pressure. These regions were already managing structural challenges before the crisis began. Low productivity growth and weak private sector expansion had limited economic momentum.
Therefore, the conflict has acted as an additional shock to already fragile economies. Growth across the region, excluding Iran, is expected to decline from 4 percent in 2025 to 1.8 percent in 2026. This represents a downgrade of 2.4 percentage points compared with earlier forecasts.
Gulf Economies Experience Steepest Downgrade
The sharpest slowdown is projected in Gulf Cooperation Council economies and Iraq. These countries remain highly exposed to energy market disruptions caused by the conflict.
Growth in Gulf economies has been downgraded by 3.1 percentage points from earlier projections. Economic expansion is now expected to slow from 4.4 percent in 2025 to 1.3 percent in 2026. Higher uncertainty and disrupted energy flows have weighed heavily on expectations.
Rising Risks and Economic Pressures
The World Bank warned that risks remain tilted toward further deterioration. A prolonged conflict could push energy and food prices higher. Additionally, trade, tourism, and remittance flows may weaken further.
Governments could also face rising fiscal pressures as spending needs increase. Moreover, continued instability may lead to greater displacement, adding social and economic strain across affected regions.
Europe and Central Asia Also Affected
The economic impact extends beyond the Middle East. Developing economies in Europe and Central Asia are expected to see growth slow to 2.1 percent in 2026. Broader geopolitical tensions and trade fragmentation continue to affect investment confidence.
Russia’s economy is forecast to expand by only 0.8 percent. Meanwhile, growth in the rest of the region is expected to ease to 2.9 percent. Higher energy costs are reducing household spending and limiting business investment.
East Asia and Pacific Growth Moderates
In East Asia and the Pacific, growth is projected to slow to 4.2 percent in 2026 from 5 percent in 2025. The energy shock linked to the Middle East conflict has added pressure to existing economic challenges.
Elevated trade barriers and global policy uncertainty continue to affect regional performance. China’s economy is expected to slow from 5 percent growth in 2025 to 4.2 percent in 2026. However, growth in the wider region could recover to 5 percent by 2027 if geopolitical tensions ease.
A Fragile Global Outlook
Overall, the revised forecasts highlight how regional conflicts can quickly influence the global economy. Energy disruptions, uncertainty, and declining investment confidence remain central concerns.
While recovery remains possible, future outcomes depend on stability returning to key regions. Continued diplomatic efforts and economic coordination may help reduce risks and restore confidence over time.
