Conflicts in Middle East could reshape global economy, says World Bank chief Ajay Banga

Washington: Rising geopolitical tensions are beginning to reshape economic expectations, with the World Bank’s president Ajay Banga warning that prolonged conflict could dampen growth, fuel inflation and strain vulnerable economies.

Speaking at the Atlantic Council, World Bank President Ajay Banga said the ongoing conflict in the Middle East, combined with existing crises such as the war in Ukraine, is already exerting pressure on global economic conditions.

“The emerging markets are more stressed… because they already start from a more complicated fiscal and debt situation,” he said, adding that advanced economies will also feel the effects.

Banga said global growth, previously projected at around 2.8 to 3 per cent, could decline by up to one percentage point in a more severe scenario. Inflation, he added, is likely to rise, with increases of up to two percentage points depending on the scale and duration of disruptions.

“If you looked at the world having a probable GDP growth of 2.8 to 3 per cent… you’re probably impacting that… all the way to a one plus percent in the more challenging… scenario,” he said.

He pointed to the ripple effects of conflict on global supply chains, particularly in energy and commodities such as fertiliser and chemicals, which are critical for economies across Asia and Africa.

The World Bank, he said, is preparing to respond with liquidity support for affected countries. According to Banga, nations could access between $20 billion and $25 billion in the near term, potentially rising to $60 billion to $70 billion over a six-month period.

“These are learnings we drew during COVID,” he said, referring to emergency financing tools developed during the pandemic.

However, he cautioned governments against unsustainable fiscal responses, urging them to focus on targeted and temporary support measures rather than broad subsidies that could worsen long-term debt burdens.

“You gotta be careful… that you don’t end up using that moment to increase your fiscal challenges,” he said.

Banga also highlighted the broader implications of overlapping crises, noting that conflicts in different regions are contributing to a more volatile global environment.

“The crisis isn’t only what’s going on today… there is more in the world,” he said, citing Ukraine and Gaza alongside the Middle East conflict.

Beyond the immediate economic impact, he suggested that geopolitical instability is reinforcing the need for countries to rethink energy security and resilience.

He said governments must consider a mix of energy sources — including gas, nuclear and renewables — to ensure reliable supply while managing long-term sustainability goals.

IANS