UN report revises down global GDP growth to 2.5% for 2026 due to Mideast crisis

The global economy is under stress due to the crisis in the Middle East, which is slowing growth, reigniting inflationary pressures and heightening uncertainty across financial markets, according to the World Economic Situation and Prospects 2026 Mid-year Update released on Tuesday by the United Nations.

Global GDP growth is now forecast at 2.5% for 2026, 0.2 percentage points below the January projection, and a modest recovery is projected at 2.8% in 2027, according to the report.

The shock delivered by the crisis is primarily felt in the energy sector, through constrained supply, surging prices, and rising freight and insurance costs, with effects cascading through supply chains and increasing production costs globally. While the surge in prices delivers substantial windfall gains for energy companies, it has intensified cost pressures for households and businesses worldwide.

A particular concern is food prices. Fertilizer supplies have been disrupted, pushing up costs, which could reduce crop yields, exerting upward pressure on food prices.

The conflict has halted the global disinflation trend underway since 2023, with inflation forecast to rise from 2.6% in 2025 to 2.9% in 2026 in developed economies, and from 4.2% to 5.2% in developing economies, the report said.

Solid labor markets, resilient consumer demand, and artificial intelligence-driven trade and investment support global activity but are unlikely to fully offset widespread headwinds, and the outlook is most challenging for fuel- and food-importing developing economies.

The impact of the crisis is highly uneven, with the most severe damage concentrated in Western Asia, where growth is projected to plunge from 3.6% in 2025 to 1.4% in 2026, driven not only by the energy shock but also by direct infrastructure damage and severe disruptions to oil production, trade and tourism, the report showed.

Elsewhere, outcomes vary widely, shaped above all by exposure and the capacity to respond.

"The Middle East crisis has intensified strains across developing economies," said UN Under-Secretary-General Li Junhua, head of the UN Department of Economic and Social Affairs. "Rising borrowing costs and renewed capital flow pressures risk deepening debt vulnerabilities and constraining the resources available for sustainable development at a critical moment."