The World Bank has warned that the conflict in the Middle East is set to bring global economic growth to its slowest since the COVID-19 pandemic. In its latest Global Economic Prospects report, the Washington-based institution cut its global growth forecast for 2026 to 2.5 percent from the 2.9 percent it had predicted in January, citing surging energy prices, rising inflation and higher borrowing costs.
The report highlights the significant economic costs of the conflict, which is at risk of flaring up again as the fragile ceasefire between the US and Iran is tested on both sides. The analysis warns that the outlook could decline further if supply disruptions worsen. Iran’s closure of the Strait of Hormuz – a vital passageway for oil and gas transit – in response to the hostilities launched by the US and Israel has put huge stress upon global energy and other supply chains.
The World Bank estimates that Brent crude prices will average $94 a barrel this year, 36 percent above last year’s average. Fertiliser prices are forecast to increase significantly this year, with knock-on effects for food prices. Overall, the closure of the strategic waterway will help to push global inflation to 4 percent this year, a substantial increase from last year’s rate of 3.3 percent.
However, the World Bank cautions that global growth could plummet to as low as 1.3 percent this year, should energy supply disruptions worsen, with inflation pushing to 4.4 percent. The report also cautions that developing countries are on the front line of the potential impact. The institution has downgraded its growth forecasts for two-thirds of countries since January.
Global growth is expected to improve to 2.8 percent in 2027, but will remain 0.4 percentage points below the average during the 2010s. Excluding China and India, the report worries that developing countries have made little progress towards narrowing their per capita income gap with wealthy nations over the past decade.
“Developing countries have faced a series of challenges over the last decade,” said Ajay Banga, president of the World Bank Group. “The impact differs by country, but the basic test is the same: protect people and preserve stability today, without giving up on growth and jobs tomorrow.”
The World Bank is pledging to assist any developing country experiencing the economic fallout of the Middle East conflict. The organisation says it has set aside up to $60bn to help. It added that if the conflict persists, it can increase its support to $100bn.
Source: www.aljazeera.com