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World Bank warns: The escalation of conflicts in the Middle East may push up global inflation and economic growth may drop to 1.3%

2026-07-22·newswire-us-stock-184529
World Bank warns: The escalation of conflicts in the Middle East may push up global inflation and economic growth may drop to 1.3%.

On Tuesday (July 21) local time, Indermit Gill, chief economist of the World Bank, said that the escalating hostilities between the United States and Iran may reignite inflation, push interest rates to rise further, and slow global economic growth to a minimum of 1.3% from 2.9% last year.

Gill pointed out that given the high degree of uncertainty surrounding war in the Middle East, the World Bank simulated three scenarios in its economic forecasts released in June, the worst of which - that the conflict lasts for six months or more - is close to becoming a reality. Under this scenario, overall global inflation would rise to 4.5%.

The United States and Israel launched military operations against Iran at the end of February this year, and Iran subsequently blocked the Strait of Hormuz in retaliation. The Strait is responsible for about one-fifth of the world's oil and liquefied natural gas (LNG) trade, and about one-third of the world's fertilizer trade.

Although the United States and Iran once reached a ceasefire agreement, the agreement has collapsed. This week, the war escalated further. U.S. forces have bombed targets in southern and western Iran, while Iran has attacked U.S. facilities in Bahrain, Kuwait and Jordan.

Shipping in the Strait of Hormuz continues to be disrupted, and Yemen's Houthi armed forces, allied with Iran, have also announced that they will impose a naval blockade on Saudi ships entering the Red Sea through the Bab el-Mandeb Strait.

Gill said protracted fighting and damage to oil infrastructure in the Middle East would also disrupt the transportation of agricultural supplies such as fertilizers, helium and sulfur, exacerbating food security issues and triggering a series of secondary impacts that could include further rises in interest rates.

He warned that poor countries that have not yet recovered from the impact of the COVID-19 epidemic may face more serious food security problems; while countries with higher debt levels will be hit by rising interest rates and increased borrowing costs, which will also squeeze expenditures on education, health care and other key public services.

"My personal feeling is that we're probably only a few months away from that situation because we haven't really seen policy rates start to rise yet," he said. He added that once inflation accelerates, it could be just a few months before highly indebted countries will run into serious difficulties repaying their debts.

Forecasts released by the World Bank in June showed that 40% of low- and middle-income countries have fallen into debt distress or face a high risk of falling into debt distress. Gill said that's equivalent to 32 countries, a number that could increase quickly if interest rates rise.

Even if some countries do not ultimately default on their debt, their long-term economic growth prospects may be undermined.

According to World Bank data, the average debt of emerging market and developing economies will account for about 74% of gross domestic product (GDP) in 2025, which is much higher than the level of about 50% to 55% before the outbreak of the new crown epidemic. In low-income countries, the proportion rose from about 40% to 67%.

Developing countries poised to benefit from artificial intelligence As far as developing countries are concerned, Gill also mentioned some positive factors. A new World Bank analysis of artificial intelligence readiness shows that these countries are poised to benefit from the emerging technology and the productivity gains it brings.

Gill said that in poorer countries, the proportion of the population that may be negatively affected by artificial intelligence is about 10%, while in richer countries, this proportion is about 30% to 40%. “So for developing countries, AI could bring huge benefits,” Gill said.

“Developing countries should be much more optimistic about the impact of artificial intelligence than developed countries.” However, he also said that while artificial intelligence has the potential to help developing countries return economic growth to levels not seen in decades, this may not happen before 2030.

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World Bank warns: The escalation of conflicts in the Middle East may push up global inflation and economic growth may drop to 1.3%

On Tuesday (July 21) local time, Indermit Gill, chief economist of the World Bank, said that the escalating hostilities between the United States and Iran may reignite inflation, push interest rates to rise further, and slow global economic growth to a minimum of 1.3% from 2.9% last year. Gill pointed out that given the high degree of uncertainty surrounding war in the Middle East, the World Bank simulated three scenarios in its economic forecasts released in June, the worst of which - that the conflict lasts for six months or more - is close to becoming a reality.

On Tuesday (July 21) local time, Indermit Gill, chief economist of the World Bank, said that the escalating hostilities between the United States and Iran may reignite inflation, push interest rates to rise further, and slow global economic growth to a minimum of 1.3% from 2.9% last year. Gill pointed out that given the high degree of uncertainty surrounding war in the Middle East, the World Bank simulated three scenarios in its economic forecasts released in June, the worst of which - that the conflict lasts for six months or more - is close to becoming a reality. Under this scenario, overall global inflation would rise to 4.5%. The United States and Israel launched military operations against Iran at the end of February this year, and Iran subsequently blocked the Strait of Hormuz in retaliation. The Strait is responsible for about one-fifth of the world's oil and liquefied natural gas (LNG) trade, and about one-third of the world's fertilizer trade. Although the United States and Iran once reached a ceasefire agreement, the agreement has collapsed. This week, the war escalated further. U.S. forces have bombed targets in southern and western Iran, while Iran has attacked U.S. facilities in Bahrain, Kuwait and Jordan. Shipping in the Strait of Hormuz continues to be disrupted, and Yemen's Houthi armed forces, allied with Iran, have also announced that they will impose a naval blockade on Saudi ships entering the Red Sea through the Bab el-Mandeb Strait. Gill said protracted fighting and damage to oil infrastructure in the Middle East would also disrupt the transportation of agricultural supplies such as fertilizers, helium and sulfur, exacerbating food security issues and triggering a series of secondary impacts that could include further rises in interest rates. He warned that poor countries that have not yet recovered from the impact of the COVID-19 epidemic may face more serious food security problems; while countries with higher debt levels will be hit by rising interest rates and increased borrowing costs, which will also squeeze expenditures on education, health care and other key public services. "My personal feeling is that we're probably only a few months away from that situation because we haven't really seen policy rates start to rise yet," he said. He added that once inflation accelerates, it could be just a few months before highly indebted countries will run into serious difficulties repaying their debts. Forecasts released by the World Bank in June showed that 40% of low- and middle-income countries have fallen into debt distress or face a high risk of falling into debt distress. Gill said that's equivalent to 32 countries, a number that could increase quickly if interest rates rise. Even if some countries do not ultimately default on their debt, their long-term economic growth prospects may be undermined. According to World Bank data, the average debt of emerging market and developing economies will account for about 74% of gross domestic product (GDP) in 2025, which is much higher than the level of about 50% to 55% before the outbreak of the new crown epidemic. In low-income countries, the proportion rose from about 40% to 67%. Developing countries poised to benefit from artificial intelligence As far as developing countries are concerned, Gill also mentioned some positive factors. A new World Bank analysis of artificial intelligence readiness shows that these countries are poised to benefit from the emerging technology and the productivity gains it brings. Gill said that in poorer countries, the proportion of the population that may be negatively affected by artificial intelligence is about 10%, while in richer countries, this proportion is about 30% to 40%. “So for developing countries, AI could bring huge benefits,” Gill said. “Developing countries should be much more optimistic about the impact of artificial intelligence than developed countries.” However, he also said that while artificial intelligence has the potential to help developing countries return economic growth to levels not seen in decades, this may not happen before 2030.

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