The United Nations has revised its global economic outlook downward, warning that the world faces one of its weakest growth periods this century outside of the pandemic and the 2008 financial crisis. The downgrade, detailed in the mid-2026 update of the World Economic Situation and Prospects report, is driven by the ongoing conflict in the Middle East and its ripple effects on energy markets.
Global GDP growth is now projected at 2.5% for 2026, down from the 2.7% forecast in January. In a more adverse scenario, the UN warns growth could fall to just 2.1%. Shantanu Mukherjee, director of economic analysis at the UN Department of Economic and Social Affairs, stressed that while the global economy is not close to a recession, the outlook is grim for billions of people, and some countries may face economic contraction.
Inflation is expected to rise to 3.9% globally this year, a significant 0.8 percentage point increase from the January forecast. The revision comes after US and Israeli air strikes on Iran, which prompted Tehran to block the Strait of Hormuz—a critical chokepoint for oil, natural gas, fertiliser, and other petroleum products. "Increased energy prices are a potent factor, as are the prices of refinery products that are crucial to industrial production and commercial transport," Mukherjee said.
Europe Bears the Brunt
The impact of the crisis is unevenly distributed, with Europe particularly vulnerable due to its heavy reliance on imported energy. The UN report notes that the EU's economic growth is expected to slow from 1.5% in 2025 to 1.1% in 2026, while the UK faces a sharper decline, from 1.4% to just 0.7%. This contrasts with the US, which is forecast to remain "comparatively resilient" with 2% growth this year.
European households and businesses are already feeling the strain of higher energy costs, which are eroding real incomes and dampening economic activity. The situation has prompted calls for coordinated action, including discussions at the G7 finance talks in Paris, where energy shocks and sanctions on Russia are high on the agenda. Some leaders, such as Italian Prime Minister Giorgia Meloni, are pressing the EU to treat the energy crisis with the same urgency as a defence emergency, seeking fiscal flexibility to cushion the blow.
In West Asia—a region encompassing 21 Arab countries including those in the Persian Gulf—the economic damage is most severe. Growth there is projected to plunge from 3.6% in 2025 to 1.4% in 2026, driven by the energy shock, direct infrastructure damage, and disruptions to oil production, trade, and tourism. The Suez Canal, a vital artery for European trade, is also under threat, with a summit addressing the fuel crisis that could disrupt summer travel and supply chains.
Inflation dynamics vary widely. Wealthier developed countries are expected to see inflation rise from 2.6% in 2025 to 2.9% in 2026, while developing countries face a sharper increase from 4.2% to 5.2%, as higher costs for energy, transportation, and imported goods squeeze real incomes. Africa's growth is projected to dip only slightly, from 4.2% to 3.9%, while Latin America and the Caribbean see a slowdown from 2.5% to 2.3%.
Asia offers a mixed picture. China, with its diversified energy mix, sizeable strategic reserves, and government support, is expected to see growth slow modestly from 5% in 2025 to 4.6% in 2026. India remains one of the fastest-growing major economies, though its expansion is forecast to ease from 7.5% to 6.4%.
The UN's warning underscores the interconnectedness of global economies and the disproportionate impact on Europe, which must navigate rising energy costs, inflationary pressures, and geopolitical uncertainty. As the continent grapples with these challenges, the need for a coordinated European response—whether through fiscal measures, energy diversification, or diplomatic efforts—has never been more urgent.
