The World Bank warned that a prolonged US-Iran conflict could slow global growth to 1.3% in 2026, while fuelling inflation, higher interest rates and debt pressures
Escalating hostilities between the United States (US) and Iran could reignite inflation, drive interest rates higher and knock global growth back to as low as 1.3 per cent, down from 2.9 per cent last year, World Bank Chief Economist Indermit Gill told Reuters. Gill, who retires at the end of August, said the bank had modelled three outcomes in its June economic forecast given the high uncertainty surrounding the war in West Asia, but the worst-case scenario with hostilities lasting six months or more has already come close to materialising, he said in a late Tuesday interview. Under that scenario, global headline inflation would reach 4.5 per cent.
Gill said poor countries that had not recovered from the Covid pandemic could face greater food insecurity, while nations with high debt levels would be hit by rising borrowing costs as interest rates climbed, squeezing spending on education, health and other vital services. “My own sense of it is, maybe we are a few months away from that, you know, because you haven’t yet started to see policy rates go up,” he said.
