Middle East conflict could drag global growth to 1.3% in 2026, warns World Bank
According to World Bank Chief Economist Indermit Gill, if hostilities continue for several more months, the world could face slower growth, higher inflation and rising borrowing costs.
The economic impact of the conflict in the Middle East may soon be felt far beyond the region. According to World Bank Chief Economist Indermit Gill, if hostilities continue for several more months, the world could face slower growth, higher inflation and rising borrowing costs.
Gill said the worst-case scenario modelled by the World Bank suggests global economic growth could slow to just 1.3% in 2026, down sharply from 2.9% recorded last year, reported Reuters. He warned that prolonged fighting between the United States and Iran could trigger a fresh wave of inflation, making it more difficult for countries to keep their economies on track.
The World Bank had prepared three possible scenarios in its June economic outlook because of uncertainty surrounding the conflict. Gill said the most severe scenario—where hostilities continue for six months or longer—is now coming close to becoming reality.
Under this situation, global inflation could climb to 4.5%, driven largely by disruptions in energy supplies and global trade.
The warning comes after tensions between Washington and Tehran escalated following the collapse of an earlier ceasefire agreement. Military action has expanded in recent days, while shipping through key routes such as the Strait of Hormuz continues to face disruptions.
OIL AND FOOD PRICES COULD COME UNDER PRESSURE
Gill said one of the biggest concerns is the impact on oil production and transportation.
If fighting damages oil infrastructure or continues to disrupt shipping routes, crude oil prices could remain elevated for a prolonged period. Higher energy prices would increase transport and manufacturing costs, feeding into overall inflation.
The conflict could also affect global food supplies. Gill noted that disruptions to shipments of fertilisers, helium and sulphur—materials widely used in agriculture—could affect farming and push food prices higher, particularly in developing countries.
Higher inflation may also force central banks to maintain high interest rates or even raise them further, making loans more expensive for governments, businesses and households.
DEVELOPING COUNTRIES FACE THE GREATEST RISKS
According to Gill, poorer nations are likely to bear the biggest burden if borrowing costs continue to rise.
Many developing economies are still recovering from the economic impact of the COVID-19 pandemic and already carry heavy debt loads. Rising interest rates could make it even harder for these countries to repay loans while forcing governments to cut spending on healthcare, education and infrastructure.
The World Bank estimates that 40% of low- and middle-income countries—around 32 nations—are already in debt distress or at high risk of falling into it. Gill warned that this number could increase if global financial conditions worsen.
He described the situation as a "slow-moving train wreck", saying countries may continue diverting scarce resources towards debt repayments instead of investing in long-term growth.
MAJOR ECONOMIES REMAIN RELATIVELY RESILIENT
Gill said the world's three largest economies, i.e., the United States, China and India, have so far remained relatively insulated from the direct impact of the conflict, although developing countries have fewer resources to absorb prolonged global shocks.
Despite the near-term concerns, Gill also pointed to one positive trend. A new World Bank analysis suggests developing countries could benefit significantly from artificial intelligence (AI). According to him, only about 10% of people in poorer countries are likely to be negatively affected by AI, compared with 30-40% in advanced economies.
While AI could support productivity and economic growth over the long term, Gill believes the immediate challenge remains the escalating conflict in the Middle East, which could weigh heavily on the global economy if it continues for several more months.
The economic impact of the conflict in the Middle East may soon be felt far beyond the region. According to World Bank Chief Economist Indermit Gill, if hostilities continue for several more months, the world could face slower growth, higher inflation and rising borrowing costs.
Gill said the worst-case scenario modelled by the World Bank suggests global economic growth could slow to just 1.3% in 2026, down sharply from 2.9% recorded last year, reported Reuters. He warned that prolonged fighting between the United States and Iran could trigger a fresh wave of inflation, making it more difficult for countries to keep their economies on track.
The World Bank had prepared three possible scenarios in its June economic outlook because of uncertainty surrounding the conflict. Gill said the most severe scenario—where hostilities continue for six months or longer—is now coming close to becoming reality.
Under this situation, global inflation could climb to 4.5%, driven largely by disruptions in energy supplies and global trade.
The warning comes after tensions between Washington and Tehran escalated following the collapse of an earlier ceasefire agreement. Military action has expanded in recent days, while shipping through key routes such as the Strait of Hormuz continues to face disruptions.
OIL AND FOOD PRICES COULD COME UNDER PRESSURE
Gill said one of the biggest concerns is the impact on oil production and transportation.
If fighting damages oil infrastructure or continues to disrupt shipping routes, crude oil prices could remain elevated for a prolonged period. Higher energy prices would increase transport and manufacturing costs, feeding into overall inflation.
The conflict could also affect global food supplies. Gill noted that disruptions to shipments of fertilisers, helium and sulphur—materials widely used in agriculture—could affect farming and push food prices higher, particularly in developing countries.
Higher inflation may also force central banks to maintain high interest rates or even raise them further, making loans more expensive for governments, businesses and households.
DEVELOPING COUNTRIES FACE THE GREATEST RISKS
According to Gill, poorer nations are likely to bear the biggest burden if borrowing costs continue to rise.
Many developing economies are still recovering from the economic impact of the COVID-19 pandemic and already carry heavy debt loads. Rising interest rates could make it even harder for these countries to repay loans while forcing governments to cut spending on healthcare, education and infrastructure.
The World Bank estimates that 40% of low- and middle-income countries—around 32 nations—are already in debt distress or at high risk of falling into it. Gill warned that this number could increase if global financial conditions worsen.
He described the situation as a "slow-moving train wreck", saying countries may continue diverting scarce resources towards debt repayments instead of investing in long-term growth.
MAJOR ECONOMIES REMAIN RELATIVELY RESILIENT
Gill said the world's three largest economies, i.e., the United States, China and India, have so far remained relatively insulated from the direct impact of the conflict, although developing countries have fewer resources to absorb prolonged global shocks.
Despite the near-term concerns, Gill also pointed to one positive trend. A new World Bank analysis suggests developing countries could benefit significantly from artificial intelligence (AI). According to him, only about 10% of people in poorer countries are likely to be negatively affected by AI, compared with 30-40% in advanced economies.
While AI could support productivity and economic growth over the long term, Gill believes the immediate challenge remains the escalating conflict in the Middle East, which could weigh heavily on the global economy if it continues for several more months.
The economic impact of the conflict in the Middle East may soon be felt far beyond the region. According to World Bank Chief Economist Indermit Gill, if hostilities continue for several more months, the world could face slower growth, higher inflation and rising borrowing costs.
Gill said the worst-case scenario modelled by the World Bank suggests global economic growth could slow to just 1.3% in 2026, down sharply from 2.9% recorded last year, reported Reuters. He warned that prolonged fighting between the United States and Iran could trigger a fresh wave of inflation, making it more difficult for countries to keep their economies on track.
The World Bank had prepared three possible scenarios in its June economic outlook because of uncertainty surrounding the conflict. Gill said the most severe scenario—where hostilities continue for six months or longer—is now coming close to becoming reality.
Under this situation, global inflation could climb to 4.5%, driven largely by disruptions in energy supplies and global trade.
The warning comes after tensions between Washington and Tehran escalated following the collapse of an earlier ceasefire agreement. Military action has expanded in recent days, while shipping through key routes such as the Strait of Hormuz continues to face disruptions.
OIL AND FOOD PRICES COULD COME UNDER PRESSURE
Gill said one of the biggest concerns is the impact on oil production and transportation.
If fighting damages oil infrastructure or continues to disrupt shipping routes, crude oil prices could remain elevated for a prolonged period. Higher energy prices would increase transport and manufacturing costs, feeding into overall inflation.
The conflict could also affect global food supplies. Gill noted that disruptions to shipments of fertilisers, helium and sulphur—materials widely used in agriculture—could affect farming and push food prices higher, particularly in developing countries.
Higher inflation may also force central banks to maintain high interest rates or even raise them further, making loans more expensive for governments, businesses and households.
DEVELOPING COUNTRIES FACE THE GREATEST RISKS
According to Gill, poorer nations are likely to bear the biggest burden if borrowing costs continue to rise.
Many developing economies are still recovering from the economic impact of the COVID-19 pandemic and already carry heavy debt loads. Rising interest rates could make it even harder for these countries to repay loans while forcing governments to cut spending on healthcare, education and infrastructure.
The World Bank estimates that 40% of low- and middle-income countries—around 32 nations—are already in debt distress or at high risk of falling into it. Gill warned that this number could increase if global financial conditions worsen.
He described the situation as a "slow-moving train wreck", saying countries may continue diverting scarce resources towards debt repayments instead of investing in long-term growth.
MAJOR ECONOMIES REMAIN RELATIVELY RESILIENT
Gill said the world's three largest economies, i.e., the United States, China and India, have so far remained relatively insulated from the direct impact of the conflict, although developing countries have fewer resources to absorb prolonged global shocks.
Despite the near-term concerns, Gill also pointed to one positive trend. A new World Bank analysis suggests developing countries could benefit significantly from artificial intelligence (AI). According to him, only about 10% of people in poorer countries are likely to be negatively affected by AI, compared with 30-40% in advanced economies.
While AI could support productivity and economic growth over the long term, Gill believes the immediate challenge remains the escalating conflict in the Middle East, which could weigh heavily on the global economy if it continues for several more months.
