World Bank Says Iran War Could Cut Global Growth to 1.3% This Year

A prolonged war involving Iran could drag global economic growth this year to its weakest level since the Covid-19 pandemic, the World Bank said. It warned that an escalation in fighting and deeper supply-chain disruptions would add to stagflation pressures.

CNN reported on June 11 that the World Bank, in its latest Global Economic Prospects report released that day, forecast global growth of 2.5% this year, down 0.4 percentage point from 2.9% last year.

A renewed escalation in hostilities or a prolonged disruption to commodity flows would send commodity prices surging, intensify inflation pressures and worsen food insecurity, the bank said. That could trigger global financial stress and lead to a further slowdown in growth.

The World Bank identified an effective paralysis of maritime logistics through the Strait of Hormuz as a key risk, noting that crude oil, natural gas and fertilizer prices are already climbing sharply. If energy supply disruptions prove more severe than assumed and are accompanied by severe financial-market stress, global growth could fall to just 1.3% this year, it said.

Developing economies are set to bear the brunt of the Iran war. The report said growth in all developing countries would weaken this year from last year because of the conflict's fallout. Excluding China and India, per capita income in developing economies is not expected to return to pre-pandemic levels until after 2028.