World Bank president: Middle East war to reduce global growth, push inflation higher

World Bank President Ajay Banga said on Tuesday that the war in the Middle East is expected to weigh on global growth and push inflation higher, regardless of how quickly the conflict ends. Speaking at an event hosted by the Atlantic Council ahead of next week's Spring Meetings of the World Bank and the International Monetary Fund, Banga said the scale of the economic impact would depend on the severity and duration of disruption to energy markets.

Growth and inflation projections

Banga said a rapid end to the conflict could allow some normalization in the coming months, while a more prolonged crisis could extend the fallout for six to eight months. Global growth, which had been projected at 2.83% before the latest conflict, could be reduced by 0.3 to 0.4 percentage points under a baseline scenario, with the hit rising to more than 1 percentage point if the war drags on. He added that inflation could increase by as much as 0.9 percentage points.

World Bank response

He also said finance officials gathering in Washington are expected to discuss how the World Bank and IMF can support countries hit hardest by rising energy prices and supply chain disruptions stemming from the war. Banga noted that the World Bank can rapidly disburse funding through its crisis response windows, similar to mechanisms used during the COVID-19 pandemic. Countries affected by the war could potentially access around $30 billion through these crisis windows over the next two to three months, with as much as $70 billion available over six months.

Fiscal warning

Banga, however, warned governments against deepening fiscal strains through unaffordable subsidies that could create larger economic problems in the years ahead.

Conflict context

The war began after the US and Israel launched a joint offensive on Iran on Feb. 28, killing more than 1,400 people according to Iranian authorities. Iran has retaliated with strikes across the region while restricting movement through the Strait of Hormuz, disrupting roughly 20 million barrels of daily oil traffic.