The global economy is under severe strain due to the ongoing crisis in the Middle East, which is slowing growth, reviving inflationary pressures, and increasing uncertainty across financial markets, according to the World Economic Situation and Prospects 2026 Mid-year Update released by the United Nations (UN) on Tuesday.
Growth Projections Revised Downward
Global gross domestic product (GDP) growth is now expected to reach only 2.5 percent for 2026, down 0.2 percentage points from the January estimate. A modest recovery to 2.8 percent is forecast for 2027, the report stated.
Energy Sector First to Feel the Impact
The crisis has first impacted the energy sector through limited supply, rising prices, and increasing freight and insurance costs. These effects have cascaded through supply chains, raising production costs worldwide. While higher prices have generated significant windfall profits for oil companies, they have also increased cost pressures for households and businesses globally.
Food Prices a Particular Concern
Fertilizer supplies have been disrupted, driving up costs and potentially reducing crop yields, which could further increase food prices. The conflict has halted the global disinflation trend that began in 2023. Inflation is expected to rise from 2.6 percent in 2025 to 2.9 percent in 2026 in developed countries, and from 4.2 percent to 5.2 percent in developing countries, according to the report.
Supportive Factors vs. Widespread Challenges
Solid labor markets, resilient consumer demand, and trade and investment driven by artificial intelligence are supporting global activity. However, these factors are unlikely to offset the widespread challenges, and the economic outlook is more difficult for developing countries that rely on fuel and food imports.
Uneven Impact Across Regions
The impact of the crisis is uneven, with the most severe damage experienced in Western Asia, where growth is expected to fall from 3.6 percent in 2025 to 1.4 percent in 2026. This is not only due to the energy shock but also because of direct damage to infrastructure and severe setbacks in oil production, trade, and tourism, as highlighted in the report. Elsewhere, outcomes vary depending on their exposure to the crisis and their capacity to respond.
