WASHINGTON: Ajay Banga, President of the World Bank, has cautioned that the ongoing conflict in the Middle East could significantly slow global economic growth, even if the current fragile ceasefire holds.
In an interview, Banga highlighted that global growth could decline by 0.3 to 0.4 percentage points under a baseline scenario assuming an early resolution. However, if the conflict persists, the impact could deepen to as much as a 1 percentage point reduction in global growth.
He further warned that inflationary pressures are likely to intensify, with a potential rise of 200 to 300 basis points, and possibly up to 0.9 percentage points if hostilities continue.
The conflict — involving Israel and Iran — has already caused widespread disruption, pushing global oil prices up by nearly 50% and affecting supplies of key commodities such as oil, gas, fertiliser, and helium. It has also negatively impacted tourism and international air travel.
A two-week ceasefire announced by Donald Trump remains uncertain, as intermittent strikes continue. Iran has set conditions for sustained peace, including the release of its blocked assets and a ceasefire in Lebanon, ahead of planned talks with the United States in Pakistan.
Banga stressed that the key question remains whether ongoing negotiations will lead to lasting peace and the reopening of the strategically vital Strait of Hormuz. Failure to do so could result in prolonged disruptions to global energy supplies and infrastructure.
He also revealed that the World Bank is actively engaging with vulnerable developing nations, particularly small island states lacking natural energy resources, to provide financial support through its crisis response programs to help mitigate the economic fallout.
By Reuters
