World Bank cuts 2026 global growth forecast to 2.5% amid Iran war fallout

The World Bank and European Central Bank issued stark warnings on Thursday as the economic repercussions of the Iran war deepened. The World Bank cut its 2026 global growth forecast to 2.5%, the weakest since the COVID-19 pandemic Source: AP, and warned growth could fall to 1.3% if the conflict escalates Source: Guardian. Meanwhile, the ECB raised its key interest rate by 25 basis points to 2.25%—the first hike since 2023—to combat inflation fueled by surging energy costs Source: CNBC.

The war, which began on Feb. 28, has disrupted oil flows through the Strait of Hormuz, pushing Brent crude to $93-94 per barrel, up from $73 before the conflict Source: AP. This has driven eurozone inflation to 3.2% in May, well above the ECB's 2% target Source: AP. The ECB now sees inflation averaging 3% in 2026 Source: CNBC. Developing economies have been hit harder; the World Bank slashed its 2026 growth forecast for them to 3.6% Source: AP. Fertilizer prices are expected to jump 38%, risking food shortages Source: Guardian.

While the U.S. economy is largely spared—with growth forecast unchanged at 2.2%—the eurozone is expected to grow just 0.8% this year Source: AP. The Fed is expected to hold rates steady next week, a contrast to the ECB's action Source: AP. ECB President Lagarde stressed the bank is 'not pre-committing to a particular rate path' Source: CNBC. The World Bank has made up to $100 billion available for affected countries Source: Guardian.