Middle East war to cut growth, deliver cascading impact — World Bank chief

The war in the Middle East will have a cascading impact on the global economy, even if the fragile ceasefire announced by US President Donald Trump takes hold, World Bank President Ajay Banga tells Reuters in an interview.

And the damage will be far deeper if the ceasefire fails and the conflict escalates, he says.

Banga on Tuesday said global growth could be lowered by 0.3 to 0.4 percentage point in a baseline scenario, with an early end to the war, and by as much as 1 percentage point if it endures. Inflation could increase by 200 to 300 basis points, with a much higher impact — of up to 0.9 percentage point — if the war continues, he said.

The war, which has killed thousands of people across the Middle East, has sent the price of oil up by 50% while disrupting supplies of oil, gas, fertilizer, helium and other goods, as well as tourism and air travel.

“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)?” says 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?”

Banga says the world’s largest development bank was 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.”