- The Middle East crisis has delivered another shock to the global economy, slowing growth, reigniting inflation, and heightening uncertainty. Global GDP growth is now forecast at 2.5% in 2026―0.2 percentage points below the January projection and well below pre-pandemic norms―with a modest recovery to 2.8% projected in 2027.
- The shock is primarily felt through constrained energy supply, surging prices, and rising freight and insurance costs, cascading through supply chains and increasing production costs globally. The conflict has halted the global disinflation trend since 2023. In developed economies, inflation is forecast to rise from 2.6% in 2025 to 2.9% in 2026; in developing economies, the uptick is sharper, accelerating from 4.2% to 5.2%. Food prices are a particular concern, as disrupted fertilizer supplies could reduce crop yields and broaden price pressures.
- For central banks, the uncertain inflation environment poses a dilemma: raising rates risks weakening growth, while standing pat risks entrenching price pressures. Global financial markets have remained broadly resilient, but higher inflation expectations have driven short-term bond yields higher, tightening external financing conditions for developing countries.
- "The Middle East crisis has intensified strains across developing economies," said Li Junhua, UN Under-Secretary-General for Economic and Social Affairs. "Rising borrowing costs and renewed capital flow pressures risk deepening debt vulnerabilities and constraining resources for sustainable development at a critical moment."