NEW YORK: The UN on Tuesday warned that the Iran war has dealt a fresh blow to the global economy, dragging down growth forecasts, reviving inflationary pressures and threatening hard-won gains across the developing world.
Presenting the mid-2026 update of the World Economic Situation and Prospects report at the organization’s headquarters in New York, senior officials from the UN Department of Economic and Social Affairs said the fallout from the conflict has spread far beyond energy markets, creating a broader supply shock affecting trade, public finances and food security.
“What began as a blow to energy markets on Feb. 28 has turned into a broader supply shock of uncertain scope, magnitude and duration,” said Shantanu Mukherjee, director of DESA’s Economic Analysis and Policy Division.
The UN now forecasts global economic growth at 2.5 percent in 2026, down from earlier projections, with a modest recovery to 2.8 percent expected in 2027.
Officials cautioned that the outlook remains highly uncertain and could deteriorate further if disruptions in energy markets persist.
In a more severe scenario outlined by the UN, global growth could slow to just 2.1 percent in 2026, among the weakest performances this century outside the COVID-19 pandemic and the global financial crisis.
Mukherjee said developing economies are being hit hardest, with growth in 2026 projected to fall 1.3 percentage points below pre-pandemic averages.
The crisis has also reversed the global disinflation trend that had been underway since 2023. Global inflation is now projected to rise to 3.9 percent this year, 0.8 percentage points higher than anticipated in January.
The sharpest increases are expected in South Asia and Western Asia, driven largely by higher energy and transport costs.
“Higher prices are eroding real incomes, reducing purchasing power and raising costs for businesses,” Mukherjee said. “This could push more people into poverty.”
UN economists warned that rising fertilizer prices — particularly for urea, which has surged more than 60 percent — could reduce crop yields and place additional pressure on food prices in the months ahead.
Ingo Pitterle, senior economist and officer in charge of DESA’s Global Economic Monitoring Branch, said the economic consequences are extending through multiple channels, including trade disruptions, tighter financial conditions, tourism declines and mounting fiscal pressures.
“The global disinflation trend we had welcomed at the start of the year has not just stalled. It has gone into reverse,” he said, adding that poor households are especially vulnerable because they spend a larger share of their income on food and energy.
The UN warned that central banks now face a difficult balancing act between controlling inflation and supporting growth.
Rising prices are forcing many monetary authorities to delay planned interest rate cuts. Higher borrowing costs are also squeezing public finances, particularly in developing economies already burdened by heavy debt loads.
“The governments most in need of shielding vulnerable populations are the least equipped to do so,” the report said, pointing to rising debt-service costs and shrinking fiscal space.
Western Asia is expected to suffer the steepest slowdown, with growth projected to plunge from 3.6 percent in 2025 to 1.4 percent in 2026 due to infrastructure damage, disruptions to oil production and collapsing tourism revenues.
The US is expected to remain comparatively resilient, with growth forecast at 2 percent in 2026, supported by robust consumer demand and continued investment linked to artificial intelligence.
Europe, however, is more exposed to energy disruptions. Growth in the EU is expected to slow to 1.1 percent in 2026, while the UK’s economy is projected to expand by just 0.7 percent.
China’s growth is forecast to moderate from 5 percent in 2025 to 4.6 percent in 2026, aided by strategic reserves and policy support.
The report also warned that prolonged instability could undermine progress toward the UN Sustainable Development Goals, deepen food insecurity and widen inequality.
DESA officials argued that the crisis underscores the urgency of accelerating investment in renewable energy, economic diversification and international cooperation.
“Reducing reliance on volatile fossil fuel markets through investment in renewables and diversification is now more urgent than ever,” Pitterle said.
