World Bank Lowers Global Growth Forecast to 2.5% for 2026

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The World Bank has lowered its global growth forecast for 2026 to 2.5%, citing the economic fallout from the ongoing conflict in the Middle East, rising energy prices and heightened uncertainty across markets. In its latest Global Economic Prospects report, the lender warned that global growth could slow further to 1.3% if energy supply disruptions become more severe and trigger significant stress in financial markets. Global growth is expected to ease from 2.9% in 2025 to 2.5% in 2026, marking the weakest expansion since the Covid-19 pandemic. Despite the challenging global environment, India is projected to remain the world's fastest-growing major economy. The World Bank expects India's GDP to grow 6.6% in fiscal year 2026-27, following an estimated 7% growth in 2025. Further, it projected the estimated growth of 7.2% in 2027 and 7.0 in 2028.

India growth seen moderating amid higher energy costs

The report said economic activity in India remained robust in the early part of the year, supported by resilient domestic demand. Rural consumption has remained strong, while urban demand has shown signs of recovery. Collections from domestic sales taxes have also continued to rise steadily. However, growth is expected to moderate as higher energy prices and rising input costs weigh on private demand. The World Bank noted that measures such as reductions in fuel taxes and lower Goods and Services Tax (GST) rates could help support consumer spending and ease inflationary pressures. The lender said reduced US tariffs and the expected implementation of free trade agreements could help offset weaker external demand, particularly for merchandise exports. Growth is expected to rebound over the following two fiscal years, driven by stronger domestic demand and an improvement in exports.

Fiscal and external pressures likely to increase

The report said fiscal deficits in several South Asian economies, including India, are expected to widen due to higher subsidies aimed at cushioning the impact of rising energy prices. In India's case, lower revenues from tax reforms are likely to be partly offset by slower growth in capital expenditure and reductions in non-essential spending. The World Bank also projected a weakening of external balances across the region this year due to higher energy import bills and lower tourism revenues. Over the medium term, trade agreements and business-environment reforms are expected to support foreign direct investment inflows into India, the report said.

Middle East conflict weighs on global outlook

The World Bank lowered growth forecasts for two-thirds of countries as the conflict involving Iran continues to disrupt energy markets. The closure of the Strait of Hormuz has pushed up oil and gas prices, while fertiliser costs have also risen sharply, raising concerns about food supply disruptions. The lender expects Brent crude oil to average $94 per barrel this year, up 36% from 2025. It warned that if energy disruptions persist and oil averages $115 per barrel, global growth could slow to 2.1% while inflation could rise to 4.4%. "The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018," Reuters quoted World Bank chief economist Indermit Gill as saying.

Emerging economies face sharper slowdown

Developing economies are expected to grow 3.6% in 2026, down from 4.4% in 2025, according to Reuters. The World Bank said many developing nations are facing the prospect of a "lost decade" as progress in narrowing income gaps with advanced economies slows. China's economy is projected to grow 4.2% in 2026, down from 5% in 2025. The euro area is expected to expand by 0.8%, while Japan's growth is forecast at 0.7%. The World Bank expects global growth to improve modestly to 2.8% in both 2027 and 2028, although that would remain below the average growth rates recorded during the 2010s.

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