Economy
World Bank cuts global growth outlook to 2.5%, lowest since COVID
The World Bank slashed on Thursday its global growth forecast for 2026 to 2.5% due to the war in the Middle East, warning growth could slow to just 1.3% if energy supply disruptions prove more severe and come with substantial stress in financial markets.
Global growth reached 2.9% in 2025, the bank said in its semi-annual Global Economic Prospects, up 0.2 percentage points from its estimate in January.
Its 2026 forecast is down 0.1 percentage point from January, the lowest seen since the COVID-19 pandemic that began in late 2019.
The bank lowered forecasts for two-thirds of countries as a result of the war, with the biggest cuts affecting the United Arab Emirates (UAE), Iraq and other countries in the Middle East whose energy exports have been hit hard by the conflict.
The World Bank’s stark outlook comes as the war launched by U.S. and Israeli strikes on Iran on Feb. 28 drags into a fourth month.
It has sent energy prices up sharply due to the closure of the Strait of Hormuz, renewed inflationary pressures worldwide and fueled expectations of tighter monetary policy across many countries.
Fertilizer prices are also up sharply, raising concerns about a major food supply crisis.
Oil prices closed nearly $2 higher on Wednesday after U.S. President Donald Trump said the U.S. would attack Iran “very hard” if no peace deal was finalized, following one of the most significant exchanges of fire since an April ceasefire.
The World Bank said its baseline forecast assumed an average Brent crude oil price of $94 for the year, up 36% from 2025, and that the worst disruptions to energy supplies would abate by the end of July, with global headline inflation seen at 4%.
It said growth could slow to 2.1% if the energy disruptions lasted longer and oil prices averaged $115 per barrel this year, which could drive inflation to 4.4%. The outlook would worsen further, with growth decelerating to just 1.3%, if the energy shock affected financial markets, resulting in lower energy prices, greater volatility and weaker confidence, it said.
“These risk scenarios show how quickly the outlook could weaken if energy and financial pressure reinforce each other,” Ayhan Kose, the World Bank’s deputy chief economist, said. If the energy shock triggered a financial market shock, confidence could erode quickly, he said.
Growth lower than last decade
Global growth is expected to improve to 2.8% in 2027 and 2028, but that remains 0.4 percentage points below the average rates seen during the 2010s due to a slew of factors, including slower population growth, slower private investment growth, falling public investment, rising public debt and slower growth in trade, World Bank chief economist Indermit Gill said.
“The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018,” Gill told reporters, predicting the next years would be marked by high policy uncertainty, inflationary pressures and high interest rates.
Weak growth in developing economies has stalled progress toward advanced-economy income levels, with dozens of developing countries other than China and India looking at a “lost decade” in which they saw no progress on narrowing their per capita income gap with advanced economies, the report said.
Developing economies have been hit harder by the war, with the bank now projecting growth at a post-pandemic low of 3.6% this year, down from 4.4% in 2025, the bank said.
The bank maintained its forecast of 2.2% growth in the U.S. economy in 2026, but said that could taper off to 2.1% in 2027 and 2% in 2028. The euro area was expected to grow by 0.8% in 2026, down from 1.4% in 2025. Japan’s gross domestic product (GDP) was forecast to grow 0.7% in 2026, down from 1.1% in 2025.
The World Bank forecast GDP growth of 4.2% in China in 2026, a downward revision of 0.2 percentage points, after 5% growth in 2025.
Middle East countries hit hardest
The lender slashed its forecast for GDP growth in the Middle East, North Africa, Afghanistan and Pakistan by 2.7 percentage points to 1.6% in 2026, down from 4% in 2025, but said growth in the region could rebound to 5% in 2027.
The United Arab Emirates was expected to see growth of 2.4% in 2026, down sharply from the January forecast of 5% and the 2025 rate of 6.2%. The bank also lowered Türkiye’s 2026 GDP growth forecast by 0.9 percentage points to 2.8%.
The World Bank said India remained the fastest-growing large economy in the world, with its GDP seen growing by 6.6% in 2026, after growth of 7% in 2025. Growth rates in India were expected to remain fairly high for the next two decades, Gill said.
The European Central Bank (ECB) on Thursday became the first major central bank to hike interest rates in response to the Iran war as policymakers wrestle with how to confront the inflation fed by sharply higher oil prices.
The ECB’s rate-setting council raised its benchmark rate to 2.25% from 2%, where it had been for a year. The move comes ahead of rate-setting meetings next week at the Federal Reserve (Fed), the Bank of Japan (BOJ), and the Bank of England (BoE).
Oil prices have risen sharply due to Iran choking off the flow of crude oil through the Strait of Hormuz, the sea passage for a fifth of the world’s oil and fuel products during normal times.
Raising rates aims to dampen the consumer price inflation fed by higher costs for products made from crude such as gasoline, diesel fuel, cooking gas and heating oil.
International benchmark Brent crude was trading just below $92 per barrel on Thursday, up from around $73 on the eve of the war. That has helped push inflation to 3.2% in May in the 21 countries that use the euro currency, above the ECB’s target of 2%.
But ECB policymakers must also consider the impact of higher borrowing costs on an economy showing only modest growth.
That has led analysts to think Thursday’s hike will be a one-and-done moment, aimed mainly at signaling to financial markets that the bank is determined not to get behind the curve if inflation spirals higher.
Raising benchmark rates influences what lenders charge throughout the economy, increasing the cost of borrowing money to buy things and thus dampening demand for goods. Higher central bank rates can send interest costs higher for home purchases, investment in new factories, and government borrowing.
The ECB may be able to get by with only one or two increases because the inflationary surge may be milder than feared, said Carsten Brzeski, global chief of macro at ING bank.
That is because consumers burned by the post-pandemic spike in inflation are in no mood to pay higher prices, leaving businesses little choice but to swallow higher energy costs.
“The pass-through of higher energy and input prices to final consumption will be limited due to a lack of ability and willingness of consumers to actually pay for these higher prices,” he wrote in an emailed comment to The Associated Press (AP).
The German economy is expected to recover more slowly than expected as rising energy prices following the start of the U.S.-Iran war weigh on households, companies, and exports, the Kiel Institute said in its summer 2026 forecast published Thursday.
The institute expects real gross domestic product (GDP) to grow by 0.8% in 2026 and 1.0% in 2027, cutting its 2027 forecast from 1.4% in the spring.
It said the recovery would be supported by expansive fiscal policy, especially public consumption and investment, but held back by higher commodity prices, weak competitiveness and subdued business investment.
Inflation is forecast to accelerate to 2.8% in 2026 from 2.2% in 2025, before easing to 2.3% in 2027.
The institute said higher oil and gas prices were reducing purchasing power and keeping price pressures elevated.
Private consumption is expected to grow only 0.3% this year and 0.4% next year, while exports are seen rising 1.8% in 2026 and 1.6% in 2027.
The labor market is expected to improve only gradually, with unemployment forecast at 6.3% in 2026 and 6.2% in 2027.
After years of curbs, Saudi Arabia’s authorities have reopened the kingdom’s market to imports from Lebanon, lifting a five-year ban, a statement by the official press agency indicated.
According to the Saudi Press Agency (SPA) on Wednesday evening, Riyadh justified the move by citing the encouraging measures taken by the Lebanese government to strengthen state institutions.
The import ban severed access to one of Lebanon’s most important export markets and put particular pressure on the Lebanese agricultural sector.
“This is a real turning point,” Ibrahim Tarshishi, chairperson of the farmers’ association in Lebanon’s eastern Bekaa Valley, told Deutsche Presse-Agentur (dpa).
He said the focus would now be on creating the practical conditions for resuming exports and resolving outstanding issues such as transit visas for truck drivers. “We have waited five years for such a decision,” he added.
Saudi Arabia halted imports of fruits and vegetables from Lebanon in 2021. The kingdom’s authorities justified the move at the time by citing an increase in attempts to smuggle drugs, allegedly by the Hezbollah militia, into the country via agricultural shipments.
Lebanese President Joseph Aoun welcomed the decision, describing it as an expression of Saudi support for Lebanon, intended to strengthen the economy and further solidify relations between the two countries.
In the wake of the war between Israel and Iran-backed Hezbollah, the government in Beirut aims to curb Iranian influence in the country. Observers see Saudi Arabia’s decision as an important step in supporting the Lebanese government.
U.S. President Donald Trump brushed aside concerns over rising consumer prices on Wednesday, saying he “loved” the latest inflation figures and expressing confidence that inflation would ease once the conflict involving Iran comes to an end.
Asked about U.S. government data showing consumer inflation increased at its fastest pace in three years in May, and whether it could hobble his fellow Republicans just months ahead of November’s midterm election, Trump said: “I love the inflation.”
The president then explained how he greenlit a plan to secretly move oil tankers through the Strait of Hormuz over concerns of higher costs and increasing inflation. “It was worth it to me,” Trump said about his calculus and calling the operation a success. “When it’s over, you will see oil drop to where it was before,” Trump said of the larger war. “It’s coming down. It’s going to come down like a rock.”
Trump has called the war on Iran a detour and framed it as a national security issue as Tehran’s closure of the key shipping route has pushed up the cost of gasoline, fertilizer and other goods, contributing to inflation.
Higher prices could also keep the U.S. Federal Reserve from cutting interest rates, which could lower borrowing costs, which Trump has called for since returning to power last year. Republicans are seeking to maintain control of the U.S. House of Representatives and the Senate but are concerned a consumer backlash could hand the reins to Democrats as the cost of living remains a top issue for voters.
Trump himself won the 2024 presidential election in large part because of his promise to lower inflation, but has since seen his approval rating, including on his handling of the cost of living, fall to the lowest level of his political career.
Efforts to reopen the Strait of Hormuz to tanker traffic to move goods have so far stalled, with industry executives and analysts warning that coming weeks could see another oil price shock severe enough to shake the broader financial markets.
Even if Trump and Tehran reach a deal soon, it is expected to take months to get supplies moving, with the disruptions expected through 2026. And while Americans may be more insulated from fuel shocks than other nations, ongoing higher energy prices could dent consumer spending over time.
Last month, Trump said Americans’ financial struggles were not a factor as he pushed for a deal even while threatening renewed attacks on Iran: “I don’t think about Americans’ financial situation. I don’t think about anybody. I think about one thing: We cannot let Iran have a nuclear weapon.”
Turkish Airlines (THY) on Wednesday reported the highest occupancy rate ever recorded for the month of May, as its passenger count rose despite challenges amid the Middle East conflict.
National flag carrier served 7.9 million passengers last month, a 3.7% increase from a year ago, it said in a statement.
It achieved an 84% load factor, the highest ever May rate that marked a 2.9% year-over-year rise.
The airline increased its capacity, measured in available seat kilometers (ASK), by 2.5% compared with the same month a year earlier.
International load factor stood at 84%, while domestic flights recorded a load factor of 84.4%.
Total available seat kilometers rose to 23.2 billion in May from 22.6 billion a year earlier. Cargo and mail volumes increased 8.6% year-over-year to 203,100 tons.
From January through May, THY carried 36.4 million passengers, up 7.3% from the same period last year.
Overall passenger load factor for the five-month period reached 83.6%, with international routes posting 83.5% and domestic routes 84.3%.
Capacity during the five-month period increased 6.5% year-over-year to 112.1 billion available seat kilometers from 105.3 billion.
Cargo and mail traffic rose 13.5% to 954,600 tons during the period.
Its fleet included 542 planes as of the end of May, a figure is aimed to be expanded to 800 aircraft under the company’s 2033 strategy.
THY’s Chair of Board Murat Şeker said on Monday the airline plans to add ultra-long-range aircraft from late 2027 that would enable nonstop services to destinations in Australia and South America.
The carrier has orders in place for nearly 420 aircraft, including Airbus and Boeing jets, with negotiations continuing for an additional 100 Boeing planes.
Global airlines are grappling with higher fuel costs driven by the U.S. and Israel’s war with Iran, which has choked jet fuel supplies and disrupted key air corridors, forcing costly detours.
But Şeker said THY has not faced fuel supply challenges and has been less affected than some Asian markets.
The Iran conflict has upended traffic flows through Middle Eastern hubs such as Dubai, Doha and Abu Dhabi, creating acute challenges for Gulf carriers including Emirates, Qatar Airways and Etihad.
Disruptions provided THY with an opportunity to attract new passengers from South Asia, the Far East, the Maldives, Seychelles and North America.
But, Şeker said “only time will tell whether this turns into a real and lasting opportunity in the long term,” noting that major Gulf carriers have largely restored their pre-crisis capacity levels.
THY had budgeted for capacity growth of 7%-8% this year but Şeker said it now expects expansion of only 1%-2%.
Türkiye has secured 200 million euros (more than $230 million) in financing from the European Investment Bank (EIB), marking the lender’s first major funding package for the country after an eight-year break, the Treasury and Finance Ministry said on Tuesday.
The funding will be provided under two separate deals backed by a Treasury repayment guarantee. Half of the amount, 100 million euros, will go to the Türkiye Development and Investment Bank (TKYB) to support sustainable industrial investments, while the remaining 100 million euros will be channeled through Türk Eximbank for green financing projects aimed at exporters.
The funds are intended to back investments in renewable energy, energy efficiency and sustainable industrial production, in line with Türkiye’s climate targets and broader green growth strategy.
With the latest agreements, the total amount of external financing secured by Türkiye this year has reached $4.9 billion.
Treasury and Finance Minister Mehmet Şimşek said the EIB’s support for Türkiye’s development priorities was expanding through close cooperation between the two sides.
“The positive momentum in Türkiye’s relations with the European Union is beginning to produce tangible results in external financing,” Şimşek said.
He noted that, excluding a loan provided for post-2023 earthquake reconstruction efforts, the EIB had resumed offering financing opportunities to Türkiye after an eight-year pause.
The EIB had stopped virtually all lending in Türkiye after a row over oil and gas drilling off the island of Cyprus in 2019.
It formally returned to the country this year.
TKYB CEO Ibrahim Öztop said the last financing agreement with the EIB had been signed in 2017, describing the latest deal as a sign of confidence in Türkiye’s economy, transformation agenda and long-term growth potential.
“The 100 million euros financing package will support investments in renewable energy, energy efficiency and green industry, helping Turkish companies improve productivity, strengthen competitiveness and adapt to a changing global economy,” Öztop said.
Türk Eximbank CEO Ali Güney said the funding would support exporters’ projects aimed at expanding renewable energy use, improving energy efficiency and reducing carbon emissions.
He added that the financing would help Turkish exporters adapt to the European Union’s Carbon Border Adjustment Mechanism (CBAM), a key requirement for maintaining access to European markets.
‘New chapter’
EIB Vice President Robert de Groot said the two credit facilities would provide financing to small and medium-sized enterprises (SMEs) across Türkiye, supporting energy-efficiency and renewable-energy projects while helping strengthen supply chains, reduce emissions and create green jobs.
De Groot described the agreements as the beginning of “a new chapter” in cooperation between the EIB and Türkiye’s banking sector.
During meetings with government officials in Ankara, De Groot said they discussed expanding cooperation in areas including sustainable transport, clean energy and water infrastructure.
He noted that Türkiye was well positioned to advance its green and resilient growth ambitions, and said the EIB stands ready to support that journey.
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