The World Bank has flagged global and domestic economic risks arising from the war in the Middle East.
In a Friday (US 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]?” Banga said.
“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?”
Baseline estimate
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.”
Latest update
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 growth to 3.7 percent from 5.3 percent previously, citing the country’s high exposure as a net oil importer.