UN lowers global growth forecast as US, Isreal-Iran war and energy crisis intensify

KATHMANDU: Escalating geopolitical tensions in West Asia, disruptions to global energy supplies, and rising oil prices are beginning to take a visible toll on the global economy, prompting the United Nations to lower its forecast for world economic growth in 2026.

According to a new report released by the United Nations Department of Economic and Social Affairs, the global economy is now projected to expand by 2.5 percent in 2026, down from the 2.7 percent growth forecast issued in January. The report also warns that if geopolitical and energy-related risks intensify further, global growth could slow to as low as 2.1 percent.

The downgrade reflects growing concerns over the economic fallout from ongoing instability in West Asia, where conflict-related disruptions have affected energy markets and heightened uncertainty across international trade and investment flows.

One of the Weakest Growth Periods of the Century

According to Shantanu Mukherjee, Director of Economic Analysis at UN DESA, the current growth outlook would rank among the weakest economic performances of the 21st century, excluding the shocks caused by the COVID-19 pandemic and the 2008 global financial crisis.

While he noted that the global economy is not currently expected to enter a recession, he warned that higher energy costs, persistent inflationary pressures, and trade disruptions could make life significantly more expensive for billions of people worldwide.

Mukherjee also cautioned that some countries may face economic contraction if energy market disruptions persist and global demand weakens further.

Inflation Pressures Return

The UN report indicates that global inflation is expected to rise again in 2026, reversing earlier expectations of a gradual decline.

Worldwide inflation is now projected to reach 3.9 percent, higher than estimates published earlier this year. Rising energy prices have been identified as the primary driver behind the revised forecast.

The report highlights the impact of military escalation involving Iran, the United States, and Israel, which has contributed to instability in global oil and gas markets.

Particular attention has been focused on the Strait of Hormuz, one of the world’s most important energy shipping routes. Any disruption to traffic through the strait affects a substantial share of global oil, liquefied natural gas, and petroleum product supplies.

As oil prices rise, transportation, manufacturing, and industrial production costs are also increasing, creating broader inflationary pressures throughout the global economy.

Developing Economies Face Greater Risks

The report suggests that developing economies will bear a disproportionate share of the inflation burden.

Inflation across developing countries is projected to rise from 4.2 percent to 5.2 percent, driven by higher costs for imported fuel, transportation services, and essential goods.

In developed economies, inflation is expected to remain comparatively moderate but is still forecast to increase from 2.6 percent to 2.9 percent.

Higher energy costs are likely to strain public finances, weaken consumer purchasing power, and increase borrowing costs for many lower-income countries already facing debt challenges.

West Asia Expected to Suffer the Largest Economic Impact

Among all regions, West Asia is projected to experience the sharpest economic slowdown due to the direct impact of conflict and energy-sector disruptions.

The region’s economic growth is forecast to fall from 3.6 percent in 2025 to just 1.4 percent in 2026.

The UN attributes the decline to reduced energy production, damage to infrastructure, weaker trade activity, lower investment flows, and a slowdown in tourism.

Meanwhile, African economies are also expected to face challenges, although the impact is forecast to be less severe. Growth across Africa is projected to decline from 4.2 percent to 3.9 percent.

Economic growth in Latin America and the Caribbean is expected to slow from 2.5 percent to 2.3 percent, reflecting weaker external demand and higher import costs.

United States Holds Steady While Europe Faces Pressure

The report projects that the economy of the United States will remain relatively resilient despite global uncertainty.

U.S. economic growth is expected to remain at 2 percent, broadly unchanged from the previous year.

In contrast, European Union member states are expected to face greater challenges due to their dependence on imported energy.

Economic growth across the European Union is forecast to slow from 1.5 percent to 1.1 percent, while the economy of the United Kingdom is expected to decelerate from 1.4 percent to 0.7 percent.

Higher energy costs, weaker industrial output, and slower consumer spending are expected to weigh on European economies throughout the year.

China Better Positioned but Growth Still Slows

The report indicates that China may be better positioned to manage the energy shock due to its diversified energy mix, strategic reserves, and ability to deploy policy support measures.

Nevertheless, China’s growth is also expected to moderate, with economic expansion forecast to slow from 5 percent to 4.6 percent.

The United Nations warned that a prolonged disruption to global energy supplies could place even greater pressure on the world economy and increase risks to economic stability, trade, and investment.

The organization has called on the international community to prioritize de-escalation efforts, safeguard critical trade routes, and ensure stable energy supplies to prevent further deterioration in global economic conditions.