26 June 2026 - After showing notable resilience in 2025, the global economy faced a major setback in the first half of 2026. Weaker growth, mounting inflationary pressures, and heightened uncertainty are creating new challenges for sustainable development. As UN DESA released the mid-year update of the World Economic Situation and Prospects 2026, here are 5 key things you should know:
1. The global economy has been hit hard…and could face worse headwinds ahead.
The Middle East crisis has delivered a significant shock to global growth prospects, disrupting energy markets, raising transport and production costs, and sharply increasing uncertainty across trade, investment and financial markets. Global growth is now projected at 2.5 per cent in 2026, a downward revision to an already subdued outlook. In an adverse scenario, where disruptions last longer and oil prices remain high throughout the year, global growth could fall as low as 2.1 per cent, the lowest in the 21st century setting aside the years of the COVID-19 pandemic and the Global Financial Crisis.
2. Developing countries are bearing the brunt of the fallout.
Countries that depend heavily on affected trade and transport routes are experiencing the strongest impacts. Many energy-importing developing countries face a combination of slower growth, rising inflation, and growing pressure on external balances. While some energy exporters may benefit from higher prices, weaker global demand is limiting those gains.
3. Inflation is back, and leaves policymakers with difficult choices.
Global inflation is now expected to reach 3.9 per cent in 2026, up from 3.1 per cent projected in January. Inflation projections have been lifted in nine out of ten countries. For central banks, the crisis presents a dilemma: tightening policy to contain inflation risks deepening the growth slowdown, while easing risks allowing price pressures to become entrenched. On the fiscal side, rising energy costs are pushing up expenditures and higher borrowing costs are adding further strain to already stretched public finances.
4. Hard-won development gains are under threat.
The downgraded growth outlook understates the true scale of the setback to sustainable development. Rising food and energy prices risk pushing millions more into food insecurity and deeper poverty. This is placing additional strain on countries already facing acute financing pressures, as declining aid and rising debt-service costs crowd out development spending. Low-income families, who devote a larger share of their spending to food and energy, are bearing the heaviest burden.
5. The crisis risks deepening long-term damage to productivity while strengthening the case for renewables.
Higher energy and input costs, trade disruptions, and tighter financial conditions are adding new headwinds to global productivity growth, which has been on a declining trend for two decades. Industrial policy has a growing role to play in supporting investment and resilience, but the capacity to deploy it effectively remains deeply uneven. At the same time, by exposing the fragility of fossil fuel supply chains, the crisis is reinforcing the strategic case for renewables, even as higher costs and supply bottlenecks create short-term headwinds for the transition.
Learn more in the mid-year update of the World Economic Situation and Prospects 2026.