The World Bank expects global economic growth to slow from 2.9% in 2025 to 2.5% in 2026, the weakest rate since the COVID-19 pandemic. Higher energy prices, renewed inflation pressure, tighter financial conditions and geopolitical uncertainty are expected to affect economies and investment markets unevenly.
The global economy entered 2026 with different sources of resilience, including continued technology investment, positive growth in the United States and expanding artificial-intelligence infrastructure.
However, the outlook weakened materially after energy supply disruption, commodity-market volatility and geopolitical uncertainty increased pressure on inflation and borrowing costs.
In its June 2026 Global Economic Prospects report, the World Bank forecast that global economic growth would slow to 2.5% in 2026, compared with 2.9% in 2025.
Growth is expected to recover to 2.8% in 2027 and remain at approximately that level in 2028, assuming that energy supplies normalize, financial conditions gradually ease and global trade strengthens.
What Changed in the Global Forecast?
The World Bank reduced its 2026 forecast for nearly two-thirds of the economies covered by the report.
The downgrade was particularly significant for emerging market and developing economies that import energy, rely on external financing or are directly exposed to disruptions connected with the Middle East.
Several major advanced economies are also expected to experience subdued growth. The euro area is forecast to expand by only 0.8% in 2026, while Japan is expected to grow by 0.7%.
The United States is one of the more resilient large economies in the forecast, with growth projected at 2.2% in 2026. Strong technology-related investment and relatively firm domestic activity provide support, although high borrowing costs and inflation remain important risks.
| Economy or region | 2025 estimate | 2026 forecast | 2027 forecast |
|---|---|---|---|
| World | 2.9% | 2.5% | 2.8% |
| Advanced economies | 1.8% | 1.5% | 1.8% |
| United States | 2.1% | 2.2% | 2.1% |
| Euro area | 1.4% | 0.8% | 1.3% |
| Emerging and developing economies | 4.4% | 3.6% | 4.2% |
| East Asia and Pacific | 5.0% | 4.2% | 4.4% |
| Europe and Central Asia | 2.5% | 2.1% | 2.3% |
| Latin America and the Caribbean | 2.3% | 2.2% | 2.5% |
| Middle East, North Africa, Afghanistan and Pakistan | 4.0% | 1.6% | 5.0% |
| South Asia | 7.0% | 6.3% | 6.9% |
| Sub-Saharan Africa | — | 4.0% | 4.4% |
A global forecast is an aggregate. Individual countries can experience recession, stagnation or strong expansion at the same time, depending on energy exposure, domestic demand, fiscal conditions, trade links and monetary policy.
Why Is Global Growth Slowing?
Energy Supply Disruption
Higher oil and gas prices increase costs for households, transport networks, manufacturers and energy-importing countries.
Renewed Inflation
Energy and fertilizer costs can spread into food, services and industrial prices, making inflation more persistent.
Higher Borrowing Costs
Central banks may maintain tighter policy for longer, increasing financing costs for governments, companies and households.
Policy and Trade Uncertainty
Uncertain tariffs, trade routes and geopolitical relationships can delay investment and weaken cross-border activity.
The World Bank assumed in its baseline forecast that the most severe energy-supply disruption would begin to ease relatively quickly.
Under that assumption, Brent crude oil was projected to average approximately $94 per barrel in 2026, about 36% above its 2025 average.
Higher fertilizer prices could also increase agricultural production costs and contribute to food-price pressure, particularly in lower-income and food-importing economies.
A supply-driven energy shock can reduce economic activity while simultaneously increasing consumer prices. This creates a difficult environment for central banks because supporting growth may conflict with controlling inflation.
What Slower Growth Could Mean for Bonds
Slower economic growth would normally support government bonds because weaker demand can reduce inflation and increase expectations of lower interest rates.
The current environment is more complicated because the slowdown is partly connected with an inflationary energy shock.
If inflation remains elevated, central banks may be unable to reduce interest rates as quickly as bond investors expect. Short-term yields may therefore remain high even while economic activity weakens.
Long-term bond yields will depend on several competing forces:
- expectations for future central-bank policy;
- the persistence of energy and food inflation;
- government borrowing requirements;
- investor demand for defensive assets;
- currency stability; and
- concern about sovereign debt sustainability.
Highly indebted governments may face particular pressure if investors demand a larger risk premium to finance deficits during a period of weak growth.
What It Could Mean for Global Equities
Lower economic growth can reduce revenue expectations for companies that depend heavily on consumer spending, industrial production, construction or international trade.
At the same time, higher energy, transportation and financing costs can place pressure on corporate profit margins.
Cyclical Companies
Manufacturers, retailers, transport businesses and construction companies may be more sensitive to weaker demand.
Technology Investment
AI infrastructure and productivity investment remain potential sources of resilience and upside to global growth.
Energy Businesses
Higher commodity prices may support producers while increasing operating expenses for energy-intensive companies.
Defensive Sectors
Companies providing essential goods and services may experience more stable demand, although valuations still matter.
A weaker global outlook does not mean every equity market must decline. Stock prices also reflect valuations, monetary-policy expectations, company earnings, investor positioning and future rather than current economic conditions.
The World Bank noted that broader AI investment and effective adoption could improve productivity and support stronger economic growth. The benefits, however, may be concentrated in economies with sufficient digital infrastructure, skills and access to capital.
What It Could Mean for Commodities
Commodity markets are central to the 2026 outlook because the global slowdown is being driven partly by supply disruption rather than only by weak demand.
Energy prices can remain elevated even when economic growth slows if production or shipping capacity is restricted.
The implications differ across commodity categories:
- Oil and gas: sensitive to production capacity, shipping routes, strategic reserves and geopolitical developments.
- Fertilizer: higher prices may increase agricultural costs and food inflation.
- Industrial metals: potentially affected by weaker manufacturing and construction demand.
- Precious metals: influenced by inflation, real interest rates, currency movements and demand for defensive assets.
- Agricultural commodities: exposed to fertilizer costs, energy prices, trade restrictions and weather conditions.
Commodity-exporting economies may receive additional revenue when prices rise, while importing economies can experience weaker trade balances, higher inflation and pressure on their currencies.
What It Could Mean for Currencies
Currency markets may respond to differences in energy exposure, inflation, interest rates and economic resilience.
Energy-importing countries may experience pressure if higher import costs weaken their trade balances. Central banks in those economies may also need to maintain restrictive policy to support price stability.
Currencies associated with commodity exporters may initially benefit from higher export revenue, but that effect can be offset by geopolitical risk, fiscal weakness or declining global demand.
The U.S. dollar can receive support during periods of global uncertainty because of its role in international finance and defensive capital flows. However, its direction also depends on Federal Reserve policy, U.S. growth and fiscal conditions.
Emerging Markets Face Uneven Risks
Growth in emerging market and developing economies is projected to slow from 4.4% in 2025 to 3.6% in 2026 before recovering to 4.2% in 2027.
Energy importers, highly indebted governments and countries dependent on foreign-currency financing may be particularly exposed.
The World Bank reported that aggregate government debt in developing economies had increased from below 40% of GDP in 2010 to more than 70%.
When debt is already high, additional borrowing can cause financing costs to increase more sharply. Governments may then have less capacity to support economic activity, infrastructure, education and social programmes during a slowdown.
The World Bank expects developing economies excluding China and India to have experienced nearly a decade without meaningful progress in narrowing their per-capita income gap with advanced economies by 2028.
Three Possible Global Scenarios
Disruption Gradually Eases
Energy supplies begin to normalize, financial markets remain functional and growth recovers toward 2.8% in 2027.
Oil Remains Near $115
A prolonged supply disruption could reduce global growth by approximately 0.4 percentage point relative to the baseline.
Energy and Financial Shock
Higher energy prices combined with significant financial-market stress could produce a much deeper global slowdown.
What Investors Should Monitor
The direction of the global economy will depend heavily on whether the energy shock proves temporary or persistent.
- Brent crude oil and natural-gas prices
- Shipping conditions and energy supply routes
- Headline and core inflation
- Central-bank policy expectations
- Government bond yields
- Corporate credit spreads
- Global manufacturing activity
- Consumer spending trends
- Currency pressure in energy importers
- Sovereign debt and refinancing risks
- Trade-policy developments
- AI infrastructure investment
Frequently Asked Questions
Who forecasts global growth of 2.5% in 2026?
The 2.5% forecast comes from the World Bank’s June 2026 Global Economic Prospects report. Other institutions may publish different figures because they use different methods, data and assumptions.
Does 2.5% growth mean the global economy is in recession?
No. The world economy would still be expanding, but at a weak rate by historical standards. Individual countries may experience recession even when global output continues to grow.
Why can inflation rise when economic growth is slowing?
Inflation can increase when supply disruptions raise the cost of energy, food, transport and production. This type of inflation can occur even when consumer demand and economic activity weaken.
Are slower-growth forecasts automatically negative for bonds?
Not necessarily. Weaker growth can support bond prices, but persistent inflation, high government borrowing and restrictive central-bank policy can keep yields elevated.
Which regions are expected to grow fastest?
South Asia remains the fastest-growing developing region in the World Bank forecast, with projected growth of 6.3% in 2026, although this represents a slowdown from 2025.
Could artificial intelligence improve the outlook?
Yes. Broader AI investment and productivity gains represent an upside risk, but the benefits are likely to vary according to infrastructure, skills, regulation and access to investment capital.
Conclusion
The World Bank’s forecast of 2.5% global growth in 2026 points to a weaker and more uneven investment environment.
The slowdown is being driven by a difficult combination of energy disruption, renewed inflation, high debt, restrictive financing conditions and geopolitical uncertainty.
These forces can affect different markets in opposite ways. Higher energy prices may benefit some producers while hurting importers and energy-intensive businesses. Weak growth may support defensive bonds, but persistent inflation can keep interest rates elevated.
The baseline outlook assumes that the most severe disruption gradually eases. If energy supplies deteriorate further and financial stress increases, the global economy could slow much more sharply.
For market observers, the key question is therefore not only whether growth is slowing, but whether the slowdown is accompanied by declining inflation or by a prolonged supply-driven price shock.
