World Bank Fears Middle East Conflict
Could Push Global Growth to Lowest Level Since Pandemic
The world economy is weakening as energy
prices fuel a new bout of inflation.
1. Global Growth Forecast Cut
o The World
Bank has lowered its global growth forecast
for 2026 to 2.5%, down
from 2.9% in 2025,
making it the weakest growth rate since the COVID-19 pandemic.
2. Risk of a Sharper Slowdown
o The World Bank warns that if energy supply
disruptions worsen and financial markets come under stress, global growth could
fall to 1.3% in 2026.
3. Impact of Middle East Conflict
o The conflict has disrupted cargo movement
through the Strait of Hormuz, a
critical route for oil, gas and fertilizer shipments, causing significant
volatility in global commodity markets.
4. Higher Energy and Commodity Prices
o The World Bank expects commodity prices to
rise sharply, with Brent crude projected to average around $94
per barrel in 2026 under its baseline scenario.
5. Inflation Pressures Re-emerge
o Global inflation is projected to increase
to 4.0% in 2026,
compared with 3.3% in 2025,
driven largely by higher energy and fertilizer costs.
6. Central Banks Responding
o Rising inflation has already prompted the European
Central Bank to raise interest rates to 2.25%, its
first rate increase since 2023.
7. Middle East Most Affected
o Economies directly impacted by the
conflict are expected to suffer the largest growth slowdown, particularly
energy-exporting countries in the Gulf region.
8. Europe Faces Energy Headwinds
o Europe remains vulnerable due to its
dependence on imported energy, especially natural gas, making it susceptible to
higher energy costs and slower growth.
9. Sub-Saharan Africa Under Pressure
o Fertilizer shortages and rising food
prices are expected to weigh on economic growth across many African economies.
10. U.S. Economy Relatively Resilient
o The United States is benefiting from
domestic energy production, AI-related investments, and fiscal support,
although inflationary pressures are increasing there as well.
11. India Retains Growth Leadership
o Despite the global slowdown, India is
projected to remain among the fastest-growing major economies, with growth
forecast at 6.6% in 2026.
12. Need for Structural Reforms
o The World Bank urged governments to:
§ Strengthen policy frameworks.
§ Invest in infrastructure.
§ Accelerate business reforms.
§ Mobilize private capital.
§ Support job creation and economic
resilience.
·
Highlights
the growing global economic costs of the Middle East conflict.
·
Signals
a renewed risk of stagflation—higher
inflation combined with weaker growth.
·
Suggests
further monetary tightening by central banks may be required if inflation
persists.
·
Reinforces
the importance of energy security, supply-chain resilience, and structural
reforms.
·
Despite
global headwinds, India is expected to remain one of the strongest-performing
major economies in 2026.
[ABS News Service/12.06.2026]
The
war in the Middle East is slowing global economic growth this year to its weakest
pace since the Covid-19 pandemic, according to a World Bank report published on
Thursday that revealed the fallout of soaring energy prices.
The
U.S.-Israeli attack on Iran in late February has led to a prolonged disruption of
cargo traffic through the Strait of Hormuz, causing oil, gas and fertilizer prices
to gyrate for months. The disruption to global supply chains has fanned a new round
of inflation, raising expectations for higher interest rates and slower output around
the world.
The
World Bank lowered its growth outlook from earlier this year, projecting output
to slow to 2.5 percent in 2026 from the 2.9 percent it grew in 2025. It estimated
that output could fall to 1.3 percent if the conflict escalated and supply disruptions
were protracted.
The
conflict appeared to be escalating on Thursday, when President Trump threatened
additional attacks on Iran and a takeover of its energy infrastructure.
“At
some point in the not too distant future, we will be taking Kharg Island, and other
oil infrastructure points, and assume total control of their Oil and Gas Markets,
much like we have with Venezuela,” Mr. Trump wrote in a post on social media.
Uncertainty
over the arc of the war is expected to persist, as Mr. Trump said later on Thursday
that he was canceling the strikes on Iran while negotiations
continued.
After
more than four years of persistent inflation, the war is pushing prices higher again.
The World Bank projects that global inflation will rise to 4 percent in 2026 from
3.3 percent last year. The increase is being driven by a 22 percent rise in commodity
prices, which in January had been expected to decline.
Rising
prices in the eurozone pushed the European Central Bank to raise interest rates
on Thursday, making it the first global central bank to increase borrowing costs
in the wake of the war. The inflation rate in the eurozone was 3.2 percent in May,
driven by higher energy prices stemming from the closure of the Strait of Hormuz.
The
Middle East is bearing the brunt of the global slowdown, as the war impedes oil
exports. Europe is also facing substantial headwinds because of its reliance on
natural gas imports. High food prices and fertilizer shortages are slowing growth
in sub-Saharan Africa.
The
U.S. economy has been relatively resilient because of tax cuts, artificial intelligence
investments and domestic oil production. Despite those buffers, the United States
is also contending with rising consumer prices.
On
Wednesday, the Consumer Price Index showed that the annual rate of inflation rose
to 4.2 percent in May. That was up from a 2.4 percent before the war in the Middle
East started and the fastest pace since April 2023.
The
World Bank said policymakers needed to balance their goals of containing inflation
and supporting economic growth. It warned that weaker investment could lead to slower
hiring.
“The
conflict has taken a toll on global activity, but every crisis also brings an opportunity,”
said Ayhan Kose, deputy chief economist at the World Bank Group. “This moment should
be used to strengthen policy frameworks, invest in infrastructure, accelerate business-enabling
reforms and mobilize private capital to support job creation at scale.”