Middle East war to cut growth, deliver cascading impact, says World Bank chief

WASHINGTON: The war in the Middle East will have a cascading impact on the global economy, even if a ceasefire announced by US President Donald Trump takes hold, World Bank President Ajay Banga said in a media interview.

And the damage will be far deeper if the ceasefire fails and the conflict escalates, he said.

Banga on Tuesday said global growth could be lowered by 0.3 to 0.4 percentage point in a baseline scenario, with an early end to the war, and by as much as 1 percentage point if it endures. Inflation could increase by 200 to 300 basis points, with a much higher impact — of up to 0.9 percentage point — if the war continues, he said.

The World Bank’s baseline estimate now projects growth in emerging markets and developing economies of 3.65 per cent in 2026, compared to 4.0 per cent in October, dropping as low as 2.6 per cent in an adverse scenario with a longer-lasting war. Inflation in those countries was now forecast to hit 4.9% in 2026, up from the previous estimate of 3.0 per cent. The extreme scenario could see inflation rising as high as 6.7 per cent, according to estimates.

“The question really is, does this current peace and the negotiations that are going to be happening this weekend — will this lead to a lasting peace and then a reopening of the Strait (of Hormuz)?” said Banga. “If it doesn’t lead to that, and if conflict were to break out again, would that have an even larger impact, or longer-term impact on energy infrastructure?”

Banga said the world’s largest development bank was already in discussions with some developing countries, including small island states with no natural energy resources, about tapping funds from existing programs under “crisis response windows”. Monitoring Desk