Shantanu Mukherjee, Director of the Economic Analysis and Policy Division of the United Nations Department of Economic and Social Affairs (UN DESA), and Ingo Pitterle, Senior Economist and Officer-in-charge of the Global Economic Monitoring Branch of the Economic Analysis and Policy Division of UN DESA. Credit: Naureen Hossain/IPS

By Naureen Hossain
UNITED NATIONS, May 20 2026 (IPS)

The ongoing crisis in the Middle East and the closure of the Strait of Hormuz continue to put immense stress and risk on the global economy.

A new UN report highlights that slowing growth, re-emerging inflation rates and heightened uncertainty affect the world entirely, but they are playing out differently across different economic brackets. Developing and vulnerable economies are feeling the shocks more acutely without sufficient resources or robust policies to address incoming challenges.

Released this week on May 19, the World Economic Situation and Prospects as of mid-2026 report provides a breakdown of growth and inflation rates and the capacity of different regions to deal with the impact of the Middle East crisis. The consequences of the current conflict have reverberated across multiple sectors. Trade, energy and commodity prices, tourism, labor, and public and centralized financing have been disrupted as a result of the ongoing closure of the Strait of Hormuz.

“What began as a blow to energy markets on the 28th of February has turned into a broader supply shock of uncertain scope, magnitude, and duration that is ripping across the world,” said Shantanu Mukherjee, Director of the Economic Analysis and Policy Division of UN DESA.

Ingo Pitterle, Senior Economist and Officer-in-charge of the Global Economic Monitoring Branch of the Economic Analysis and Policy Division of UN DESA, remarked that the current crisis “did not arrive in isolation.” It is only the latest in a “series of shocks in recent years” that has left the global economy “more vulnerable than before.”

“What makes this shock so difficult to absorb is the range of transmission channels,” said Pitterle. “Ultimately, the impact on each economy will depend on two things: how exposed it is to these channels, and how much room for policy it has.”

Mukherjee and Pitterle emphasized that the findings of their report were based on early projections, even as policies are shifting at a faster rate than the forecast cycle can capture, and as such, acknowledged that there may be certain limitations to their forecasts.

Global GDP growth is now forecast at 2.5 percent in 2026—0.2 percentage points below projections from January and well below pre-pandemic norms. A modest recovery is projected at 2.8 percent in 2027. Solid labor markets, resilient consumer demand, and AI-driven trade and investment in select economies are expected to provide some support, but the downgrade underscores a further weakening of an already subdued global outlook. When it comes to the environment, high energy prices may signal a short-term return to carbon-intensive fuels, though the report suggests that this may strengthen the case for a structural shift away from fossil-fuel dependence and toward renewable energy.

The shock is primarily felt in the energy sector—through constrained supply, surging prices, and rising freight and insurance costs—with effects cascading through supply chains and increasing production costs globally. While the surge in prices delivers substantial windfall gains for energy companies, it has intensified cost pressures for households and businesses worldwide. So far, lower-income households have been particularly vulnerable to cost pressures with a dearth of resources to handle the shocks. The overall impact will depend on the duration of disruptions in energy markets, leaving the outlook highly uncertain.

The current downgraded global outlook understates the scale of the setback. The conflict in the Middle East threatens the hard-won gains toward the Sustainable Development Goals (SDGs) and will only slow further progress. The economic shocks are eroding food security, income streams and investments. The report warns that renewed pressures also compound a development financing squeeze, where debt-service costs are crowding out spending on health and education, and the financing and development gap sits at USD 4 trillion.

Broadly, regional impacts have manifested differently across countries. There are mounting pressures on countries dependent on fuel exports from Gulf Cooperation Council (GCC) countries, particularly in South Asia and Western Asia. Developing economies within these regions are expected to be hardest-hit by the conflict.

The report shows that Western Asia is projected to be severely impacted by the current crisis. Growth is projected to plunge from 3.6 per cent in 2025 to 1.4 per cent in 2026. In addition to energy shocks, the destruction of critical infrastructure, disruptions to oil production, trade and tourism, and escalating regional conflicts all contribute to the uncertain economic prospects for the region.

The economic outlook for Africa is weakened by shipping and energy market disruptions as well. Its growth in 2026 is projected at 3.9 percent, 0.1 percentage points below what initial forecasts predicted earlier in January. High food and fuel costs are expected to push inflation rates to 9.9 percent in 2026, an upward revision of 0.8 percentage points from January projections. Oil and gas exporters in countries like Algeria and Angola may benefit from higher prices, but gains may be offset by imports.

Remittances are a vulnerability, given that several economies in Africa, South and Southeast Asia are dependent on remittance inflows from migrant workers, including those in Gulf states. In Egypt and Ethiopia, where flows from Gulf states account for 73 percent and 20 percent, respectively, this represents an exposure to income shocks. In the case of South Asian countries like Bangladesh and Nepal, weaker remittance flows also threaten their GDPs.

According to the International Labour Organization (ILO), the current conflict will affect labor markets long after it has ended. As with economic growth, trade and energy prospects, it will be determined by the scale and duration of the conflict. At present however, the Arab states and the Asia-Pacific regions are likely the most affected by the economic shocks due to their integration with Gulf energy flows, trade routes, supply chains and labor migration. Disruptions have already manifested, such as weakening remittance flows and declines in labor deployments to GCC states.

Although these reports paint a somber picture of global prospects, they also reveal the potential for international cooperation to address these vulnerabilities and build resilience. Multilateral actors, including financial institutions, need to take deliberate measures to increase productive capacities and address structural barriers that restrict fiscal space. Renewable energy is increasingly shown to be strategically important for reducing exposure to fossil fuel shocks. Yet, investments toward renewable energy remain uneven, which limits the ability of developing economies to reap the benefits.

IPS UN Bureau Report

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