The World Bank has flagged global and domestic economic risks arising from the war in the Middle East.

In a Friday (U.S. time) interview, World Bank President Ajay Banga said global growth could be reduced by 0.3 to 0.4 percentage point under a baseline scenario with an early end to the war, and by as much as 1 percentage point if the conflict persists. He highlighted the fragile nature of the two-week ceasefire, noting continued strikes between Israel and Iran despite ongoing peace talks.

"The question really is, does this current peace and the negotiations that are going to be happening this weekend—will this lead to a lasting peace and then a reopening of the Strait [of Hormuz]?" said Banga.

"If it doesn't lead to that, and if conflict were to break out again, would that have an even larger impact, or longer-term impact on energy infrastructure?"

The World Bank’s baseline estimate now projects growth in emerging markets and developing economies at 3.65 percent in 2026, down from 4 percent in October, and potentially falling as low as 2.6 percent under an adverse scenario involving a prolonged conflict.

Banga added that global inflation could increase by 0.2 to 0.3 percentage point, with a much higher impact of up to 0.9 percentage point if the war continues. The multilateral lender previously pledged accelerated financial assistance to member countries—including the Philippines—in response to the economic impact of the Middle East conflict.

Banga cautioned countries against setting up energy subsidies they cannot afford, warning that these could create bigger fiscal problems in the future.

"I worry about making sure that they can come through this crisis, targeting what they need to do, but not doing anything that further deteriorates that fiscal space," he said, noting that the multilateral lender is already in discussions with some developing countries, including small island states with no natural energy resources, about tapping funds from existing programs under “crisis response windows.”

Banga’s comments follow the World Bank’s latest East Asia and Pacific Economic Update, in which it cut its 2026 forecast for Philippine gross domestic product (GDP) growth to 3.7 percent from 5.3 percent previously, citing the country’s high exposure as a net oil importer.

“The Philippines stands out as one of the economies in the region most acutely exposed to oil price shocks. Rising fuel costs are straining the transport sector and driving up logistics and commuting expenses for businesses and households alike,” the World Bank’s report read.

“Higher energy and fertilizer prices are likely to feed through to food costs and reduce household purchasing power. The government’s declaration of an energy emergency underscores the severity of the situation,” it added.

Domestic pump prices remain in the triple-digit-per-liter range in some areas, raising transport costs for the average Filipino. The Bangko Sentral ng Pilipinas (BSP) and the Philippine Statistics Authority (PSA) have pointed to these as the main drivers of the acceleration in March headline inflation, which rose to 4.1 percent—up 1.7 percentage points from the previous month. Higher inflation constrains purchasing power through elevated prices, which the BSP has warned may persist if global oil prices remain high.

The World Bank also said the conflict is expected to slow growth across the broader East Asia and Pacific region, as well as globally.

“Growth in developing East Asia and the Pacific is projected to moderate to 4.2 percent in 2026, as the conflict in the Middle East raises commodity prices, while trade barriers and economic policy uncertainty remain elevated,” the report added.