World Economy in Summer 2026: Iran war still weighs on growth

In the spring of 2026, global growth slowed amid rising energy prices and heightened geopolitical risks,. While production in the Persian Gulf countries has slumped, the economy remained firmly on an upward trajectory in most other countries. In the United States in particular, the economy is expected to continue expanding at a largely unchanged pace. Positive momentum continues to come from the boom in AI technology, which is providing strong impetus for trade and investment. Currently, financial markets appear to continue expecting that oil and gas production and transportation in the Gulf region will soon return to normal levels. In this scenario, which is also underlying our forecast, the consequences for the global economy will remain limited, the rise in inflation temporary, and the monetary policy response moderate. However, as the conflict has now lasted significantly longer than expected in March, we have reduced our forecast for global output growth—measured in terms of purchasing power parity—for this year from 3.1 percent to 2.8 percent. For the coming year, a rebound to 3.3 percent is then expected (March forecast: 3.2 percent). The main risk to this forecast is a prolonged closure of the Strait of Hormuz meaning that oil supplies remain at their current sharply reduced levels for a significantly longer period of time, which would lead to a much more severe and prolonged slowdown in the global economy.

Kiel Institute Experts