UN warns Iran war is hitting global economy, cutting growth and reigniting inflation risks

The United Nations on Tuesday warned that the Iran war has delivered a fresh shock to the global economy, lowering growth expectations, reviving inflation concerns and threatening development gains, particularly across poorer nations.

Presenting the mid-2026 update of the World Economic Situation and Prospects report at UN headquarters in New York, officials from the United Nations Department of Economic and Social Affairs said the impact of the conflict had spread well beyond energy markets, triggering wider disruptions in trade, public finances and food systems.

Shantanu Mukherjee said the crisis had evolved from an energy shock into a broader and more unpredictable supply disruption.

“What began as a blow to energy markets on Feb. 28 has turned into a broader supply shock of uncertain scope, magnitude and duration,” he said.

The UN now expects global economic growth to slow to 2.5 percent in 2026, lower than previous estimates, before a modest rebound to 2.8 percent in 2027. Officials warned that continued energy market instability could worsen the outlook.

Under a more severe scenario outlined in the report, growth could weaken further to just 2.1 percent in 2026 — among the weakest performances this century outside the pandemic and global financial crisis periods.

Developing countries are expected to bear the heaviest burden, with growth rates projected to remain 1.3 percentage points below pre-pandemic averages. The conflict has also interrupted the global decline in inflation seen since 2023, with worldwide inflation now forecast at 3.9 percent this year — 0.8 percentage points higher than expected earlier.

South Asia and Western Asia are likely to see the sharpest price increases, driven mainly by rising energy and transportation costs.

Mukherjee warned that increasing prices were reducing purchasing power, squeezing household incomes and raising business costs, adding that the trend risked pushing more people into poverty.

UN economists also flagged a sharp rise in fertilizer costs, particularly urea prices, which have climbed more than 60 percent and may lead to lower agricultural output and additional pressure on food prices.

Ingo Pitterle said the economic fallout was spreading through multiple channels, including disrupted trade flows, tighter financial conditions, weaker tourism activity and growing 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, noting that lower-income households face greater risks because food and energy account for a larger share of their spending.

The report said central banks are now confronting a difficult challenge of managing inflation while sustaining economic growth. Delayed interest-rate cuts and rising borrowing costs are placing additional strain on public finances, especially in developing countries already carrying significant debt burdens.

Western Asia is expected to experience the largest slowdown, with growth forecast to drop from 3.6 percent in 2025 to 1.4 percent in 2026 due to damaged infrastructure, lower oil production and declining tourism activity.

The United States is projected to remain comparatively resilient with 2 percent growth in 2026, supported by strong consumer spending and investment in artificial intelligence. Growth in the European Union is expected to slow to 1.1 percent, while the United Kingdom is forecast to expand by just 0.7 percent.

Meanwhile, China is expected to see growth moderate from 5 percent in 2025 to 4.6 percent in 2026, helped by policy measures and strategic reserves.

The UN warned that prolonged instability could jeopardize progress toward the UN Sustainable Development Goals, worsening food insecurity and inequality, while emphasizing the need for greater investment in renewable energy, economic diversification and stronger international cooperation.