World Bank: Global Growth Could Fall to 1.3 Percent
The World Bank warns that global growth in 2026 could fall to 1.3 percent in a worst-case scenario, with inflation at 4.5 percent, if the US-Iran conflict drags on and disrupts the Strait of Hormuz.
- The World Bank projects that global growth in 2026 could fall to just 1.3 percent in a worst-case scenario, down from a previously expected 2.9 percent.
- Global inflation in the same scenario could jump to 4.5 percent.
- Chief economist Indermit Gill says a US-Iran conflict lasting six months or longer is now a realistic prospect.
- The biggest threat to energy markets is a disruption of the Strait of Hormuz.
Global economic growth in 2026 could be cut nearly in half, falling to just 1.3 percent from a previously projected 2.9 percent, if an armed conflict between the United States and Iran drags on and disrupts oil shipments through the Strait of Hormuz. That is the worst-case scenario in the World Bank’s modeling, which also foresees global inflation climbing to 4.5 percent.
This is the pessimistic branch of a projection that grew out of the bank’s June report. That report modeled several outcomes, from a mild slowdown to a deep disruption, depending on how long the escalation in the Middle East lasts and how hard it hits energy markets.
Why could Hormuz drag down global growth?
The Strait of Hormuz is a narrow maritime route through which a substantial share of the world’s oil trade passes. World Bank chief economist Indermit Gill said that a scenario of prolonged conflict, lasting six months or longer, is now realistic rather than a mere theoretical possibility. In that environment, a disruption of shipments through Hormuz represents the single biggest threat to energy markets.
The mechanism is familiar from earlier oil shocks. When oil supply drops sharply, the price per barrel rises, and higher energy costs spill over into transport, manufacturing, and food. The result is a simultaneous hit to growth and to inflation, a combination that leaves central banks little room to maneuver. If they raise interest rates to contain prices, they further choke an economy that is already slowing.
For economies dependent on energy imports, Serbia among them, a higher oil price means a larger import bill, pressure on the exchange rate, and costlier fuel at the pump. Inflation of 4.5 percent globally would not stay confined to oil markets, but would be felt across a broad range of the consumer basket.
Who loses most in the worst-case scenario?
First in line are net energy importers and developing economies with weaker foreign reserves, which struggle to absorb a simultaneous price shock and a slowdown in their export markets. Oil exporters would profit in the short term from higher prices, but they too would feel the effects of weaker global demand if growth is halved.
The World Bank did not state that the 1.3 percent scenario is the most likely outcome. It is the lower bound of a range, conditioned on a prolonged conflict and a disruption in Hormuz. The baseline projection remains closer to the previously expected 2.9 percent, assuming the escalation stays limited and short-lived. The gap between those two figures, nearly two full percentage points of global growth, is measured in hundreds of billions of dollars of lost economic activity.
What makes this projection significant is not just the range of numbers, but the fact that the chief economist of one of the world’s largest financial institutions no longer treats a prolonged conflict as the far edge of probability. Could your household budget withstand an oil shock that made fuel and food more expensive overnight?
