The World Bank has lowered its global growth forecast for 2026 to 2.5%, according to its latest Global Economic Prospects report, as the conflict in the Middle East and soaring energy prices weigh on the world economy. India is projected to remain the fastest-growing major economy with GDP growth of 6.6% in fiscal year 2026-27 (April 2026 to March 2027), the report said.
Global Growth Outlook Deteriorates
The World Bank expects global growth to ease from 2.9% in 2025 to 2.5% in 2026, marking the weakest expansion since the Covid-19 pandemic, the report said. The lender warned that if energy supply disruptions become more severe and trigger significant stress in financial markets, global growth could slow further to 1.3%. Growth forecasts were lowered for two-thirds of countries, according to the World Bank.
The downward revision is driven primarily by the ongoing conflict involving Iran, which has disrupted energy markets. The closure of the Strait of Hormuz has pushed up oil and gas prices, while fertiliser costs have also risen sharply, raising concerns about food supply disruptions. The World Bank expects Brent crude oil to average $94 per barrel in 2026, up 36% from 2025. If energy disruptions persist and oil averages $115 per barrel, the bank warned global growth could slow to 2.1% and inflation could rise to 4.4%.
"The world economy is a lot less resilient today than it was in 2008 and even as compared with 2018," Reuters quoted World Bank chief economist Indermit Gill as saying.
India Retains Fastest-Growing Major Economy Label
Despite the challenging global environment, India is projected to remain the world's fastest-growing major economy. The World Bank forecasts India's GDP to grow 6.6% in fiscal year 2026-27, following an estimated 7% in 2025. Growth is expected to pick up to 7.2% in 2027 and 7.0% in 2028.
| Indicator | 2025 (estimate) | 2026 (forecast) | 2027 (forecast) | 2028 (forecast) |
|---|---|---|---|---|
| Global GDP growth | 2.9% | 2.5% | 2.8% | 2.8% |
| India GDP growth | 7.0% | 6.6% (FY26-27) | 7.2% | 7.0% |
| China GDP growth | 5.0% | 4.2% | — | — |
| Euro area GDP growth | — | 0.8% | — | — |
| Japan GDP growth | — | 0.7% | — | — |
| Developing economies growth | 4.4% | 3.6% | — | — |
Energy Costs and Trade Policy Weigh on India's Near-Term Outlook
The report said economic activity in India remained robust in the early part of the year, supported by resilient domestic demand. Rural consumption has remained strong, while urban demand has shown signs of recovery. Collections from domestic sales taxes have continued to rise steadily.
However, growth is expected to moderate as higher energy prices and rising input costs weigh on private demand. The World Bank noted that measures such as reductions in fuel taxes and lower Goods and Services Tax (GST) rates could help support consumer spending and ease inflationary pressures.
On the trade front, the lender said reduced US tariffs and the expected implementation of free trade agreements could help offset weaker external demand, particularly for merchandise exports. Growth is expected to rebound over the following two fiscal years, driven by stronger domestic demand and an improvement in exports.
Fiscal and External Pressures Likely to Increase
The report said fiscal deficits in several South Asian economies, including India, are expected to widen due to higher subsidies aimed at cushioning the impact of rising energy prices. For India, lower revenues from tax reforms are likely to be partly offset by slower growth in capital expenditure and reductions in non-essential spending.
The World Bank also projected a weakening of external balances across the region in 2026 due to higher energy import bills and lower tourism revenues. Over the medium term, trade agreements and business-environment reforms are expected to support foreign direct investment (FDI) inflows into India, according to the report.
Regional and Global Implications
Developing economies are expected to grow 3.6% in 2026, down from 4.4% in 2025. The World Bank said many developing nations face the prospect of a "lost decade" as progress in narrowing income gaps with advanced economies slows. China's economy is projected to grow 4.2% in 2026, down from 5% in 2025. The euro area is expected to expand by 0.8%, while Japan's growth is forecast at 0.7%.
The World Bank expects global growth to improve modestly to 2.8% in both 2027 and 2028, though that would remain below the average growth rates recorded during the 2010s.
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