22 September 2026 - The crisis in the Middle East has dealt yet another blow to a world economy already grappling with the lingering effects of recent shocks, heightened geopolitical and trade tensions, and shrinking fiscal space. A severe global downturn has so far been avoided, but growth remains subdued and risks are substantial.
Global growth is now projected at 2.6 per cent in 2026 and 2.9 per cent in 2027, slightly below and well below the pre-pandemic pace of 3.2 per cent. The energy shock has also reignited inflationary pressures. Brent crude has risen by about 40 per cent since February to around $100 per barrel, while diesel, jet fuel, and heating oil prices have increased even more sharply.
Despite the sharp rise in energy prices, several factors have helped limit the impact on global growth so far. Economies are less dependent on oil than in the past, while existing inventories, diversified energy supplies, and government support measures have provided temporary relief. Labour markets have remained broadly resilient, supporting household spending.
At the same time, strong demand for AI-related technologies has boosted investment, trade, and industrial activity, particularly in developed economies and several East Asian exporters. Global merchandise trade expanded by 5.4 per cent in the first five months of the year, driven largely by semiconductors, electronics, and other AI-related products.
However, the energy shock has complicated the path for monetary policy. With inflation rising again, many central banks have delayed rate cuts or tightened policy further, keeping borrowing costs higher for longer. Compounded by growing fiscal sustainability concerns, this has pushed long-term government bond yields in major developed economies to multi-year highs. Higher financing costs strain public budgets, reducing room for investment and social spending, while also dampening private investment.
Looking ahead, risks remain firmly tilted to the downside. Further disruptions to energy and commodity markets, financial market volatility, potential corrections in AI-related asset prices, and climate-related shocks could all weaken growth. Developing economies are particularly vulnerable, as high borrowing costs, limited access to finance, and constrained fiscal space leave them with little capacity to absorb additional shocks.
The World Economic Situation and Prospects 2026 September Update is available at .