World Bank Chief Economist Indermit Gill said on Tuesday (21st) that escalating hostilities between the United States and Iran could reignite global inflation and push up interest rates, potentially causing global economic growth in 2026 to plummet from last year's 2.9% to just 1.3%.
Gill noted that the World Bank's previously forecast worst-case scenario—prolonged conflict lasting over six months—is now becoming increasingly plausible. Under such conditions, global inflation could surge to 4.5%.
Ongoing fighting in the Middle East and damage to oil infrastructure have already triggered severe ripple effects across energy and agricultural supply chains. Shipping disruptions in the Strait of Hormuz and Houthi blockades in the Red Sea have interfered with the transportation of essential agricultural inputs such as fertilizers, helium, and sulfur, further worsening global food security.
Moreover, as inflation accelerates and interest rates rise, heavily indebted poor countries face soaring borrowing costs. This forces their governments to cut critical public services like education and healthcare to meet debt obligations.
Gill described this predicament as a 'slow-moving train wreck.' Currently, about 40% of low- and middle-income countries are already in debt distress or face high risk, with average debt levels soaring from 40% of GDP before the pandemic to 67%.
While large economies like the U.S., China, and India are relatively resilient and less affected, developing nations face severe survival challenges.
Despite the grim outlook, Gill highlighted that artificial intelligence (AI) could offer long-term hope for developing countries. Analysis suggests AI’s negative impact on poorer nations is expected to be around 10%, far below the 30–40% seen in wealthier countries. If productivity gains from AI are harnessed effectively, these nations could recover growth in the next decade—though this remains unattain in the short term.
FACT BOX
- Source: PR Times
- Category: Survey