By Paul Hannon
The global economy is set for one of its weakest expansions this century as the conflict in the Middle East pushes energy prices higher, but could grow even more slowly if the Strait of Hormuz remains closed, the United Nations said Tuesday.
However, the body left its growth forecast for the U.S. economy this year unchanged at 2%, citing support from strong consumer spending and investment in technologies driven by artificial intelligence.
The UN said it now expects the global economy to grow by 2.5% in 2026, down from the 2.7% it projected in January. That would be the slowest expansion since output fell in 2020 as the Covid-19 pandemic spread. Before that year, growth was last weaker in 2009, when output fell in response to the global financial crisis.
The UN estimates that a fifth of the world's oil and natural gas supplies usually transit through the strait, and described the disruption to energy availability caused by the war as "among the largest in modern history."
Its forecasts assume that oil prices are above $100 a barrel until midyear, and then fall toward $80 a barrel in the second half, and a little further in 2027. It lowered its global economic growth forecast for next year to 2.8% from 2.9% in January.
"Higher costs are eroding household purchasing power and compressing business margins, while heightened uncertainty is dampening business confidence and investment," the UN said.
The UN also raised its estimate for global inflation this year, to 3.9% from 3.1% in January. Much of that pickup will be driven by developing economies, among which the UN expects inflation to average 5.2%, well above the 3.9% previously forecast.
Rising inflation expectations among investors have pushed bond prices down and yields higher over recent weeks, raising the cost of borrowing for governments, households and businesses.
"Central banks are expected to hold rates higher than previously anticipated, contributing to increasing sovereign bond yields and tightening global financial conditions," the UN said.
The body warned that should adverse developments in the conflict push oil prices above $150 before a decline to $100 by the end of the year, the global economy would grow by 2.1% this year and 2.6% next.
"A faster-than-expected resolution could restore confidence, while a prolonged disruption could deepen the downgrade," the UN said.
Under its assumption of an earlier end to disruption, the UN sees Western Asia--which includes many of the countries most directly affected by the conflict, but excludes Iran--suffering the largest economic losses as a result of falling energy exports and reduced tourism.
It lowered its growth forecast for the region to 1.4%, down from the 4.1% expected in January and the 3.6% expansion recorded in 2025. It expects growth to pick up to 4.3% next year.
"The scale of the downturn remains highly uncertain, depending on the conflict's duration and intensity," the UN said.
The body lowered its growth forecasts for North Africa to 3.7% from 4.1%, and its projection for East Africa to 5.6% from 5.8%.
"The outlook is most challenging for fuel- and food-importing developing economies, where surging import costs risk widening fiscal deficits, straining external balances, and deepening food insecurity," the body said.
Food prices are also on the rise, reflecting the higher costs of energy and fertilizers that rely on chemicals usually transported through the strait.
The UN estimated that the conflict could push an additional 45 million people into "acute food insecurity," which includes the risk of death as a result of starvation, bringing the total to 363 million.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
05-19-26 1259ET
