World Bank Warns War Will Slow Growth and Fuel Inflation

World Bank President Ajay Banga has warned that the ongoing Middle East conflict will lead to slower global economic growth and higher inflation, regardless of how quickly the war ends.

Speaking ahead of upcoming meetings of the World Bank and the International Monetary Fund, Banga said the scale of the impact will depend largely on how long energy market disruptions continue. A short conflict could allow economic conditions to stabilize within months, while a prolonged war may extend the damage for up to eight months or longer.

Growth and Inflation Impact

Before the conflict, global economic growth was projected at around 2.83%. Banga said the war could reduce that by 0.3 to 0.4 percentage points in a baseline scenario, and by more than 1 percentage point if the crisis deepens.

Inflation is also expected to rise, potentially increasing by as much as 0.9 percentage points, driven largely by higher energy prices and supply chain disruptions.

Financial Support Measures

Banga highlighted that the World Bank is prepared to provide rapid financial assistance to affected countries through its “crisis response windows,” a mechanism previously used during the COVID-19 pandemic.

Under this system:

• Countries can quickly access up to 10% of undisbursed funds from existing programs
• Around $30 billion could be made available in the next two to three months
• Up to $70 billion could be mobilized over six months

These funds are intended to help nations cope with rising energy costs and economic shocks linked to the conflict.

Warning on Government Spending

Despite the available support, Banga cautioned governments against excessive spending measures, particularly broad subsidies that could strain public finances in the long term.

He stressed that while immediate relief may be necessary, poorly targeted policies could create deeper fiscal problems in the future.

Outlook

The warning reinforces growing concerns among global institutions that the war’s economic effects are spreading beyond the region, affecting growth, inflation, and financial stability worldwide. The duration of the conflict remains the key factor determining how severe those impacts will become.