World Bank and Bundesbank Sound Alarm Over Iran Conflict’s Economic Toll

The global economy is facing its sharpest slowdown since the COVID-19 pandemic, with the World Bank warning that the conflict in the Middle East will drag growth down to 2.5 per cent in 2026, a marked deterioration from the 2.9 per cent recorded in 2025. In its latest Global Economic Prospects report, the Washington-based institution downgraded forecasts for two-thirds of the world’s economies, citing surging energy costs, steeper inflation and higher borrowing costs. The projections, viewed from Washington, mark a decisive break from the modest optimism of January, and officials caution that the outlook could darken further if supply disruptions intensify.

In Frankfurt, the Bundesbank issued its own alarm, slashing Germany’s growth forecast for 2026 to a meagre 0.5 per cent, down from an already tepid 0.6 per cent expected in December. The 2027 estimate was nearly halved, from 1.3 per cent to 0.8 per cent. Bundesbank President Joachim Nagel offered a note of conditional hope, suggesting that by 2028 the economy could regain momentum on the back of falling energy prices, a recovering world economy and state investment. Yet for German households and businesses, the immediate picture is one of exploding energy bills, supply bottlenecks and eroding purchasing power.

The transmission mechanism runs largely through the Strait of Hormuz. Iranian economic observers note that the World Bank’s baseline assumes the worst disruptions ease by July, but even under that scenario Brent crude is forecast to average $94 a barrel in 2026, a 36 per cent jump over 2025 levels. The closure of the vital waterway, reported by Ghanaian and UAE outlets as a response to US strikes amid a fragile ceasefire, has convulsed energy markets. Global headline inflation is projected at 4 per cent, and the World Bank’s downside scenario—where energy turmoil triggers financial market volatility and a loss of confidence—would slash growth to 1.3 per cent and push inflation to 4.4 per cent.

Across the developing world, the damage is disproportionately severe. By 2028, developing economies other than China and India will have endured nearly a decade of no progress in narrowing the income gap with advanced nations, a stagnation that Ghanaian reports frame as a lost decade for aspiration. The World Bank expects a modest recovery to 2.8 per cent global growth in 2027, still 0.4 percentage points below the 2010s average. Analysts in London note that the interplay between a potential easing of hostilities and structural fragilities in low-income countries will determine whether the forecast recovery materialises or whether the current crisis entrenches a new normal of subdued growth.