Bangkok: The World Bank has issued a warning that a potential conflict involving the United States, Israel, and Iran could lead to a global economic downturn reminiscent of the post-COVID-19 era.
According to Thai News Agency, the World Bank's latest Global Economic Prospects report highlights the potential repercussions of such a conflict, predicting that global economic growth could plummet to 2.5 percent by 2026. This figure marks a significant drop from the earlier forecast of 2.9 percent and represents the lowest growth rate since the COVID-19 pandemic began.
The report further outlines the potential consequences of the conflict, including soaring energy prices, hyperinflation, and rapidly increasing borrowing costs. In a worst-case scenario, global economic growth could fall to as low as 1.3 percent if the energy crisis exacerbates and spreads into financial markets. It also projects inflation to reach 4 percent this year, significantly higher than last year's 3.3 percent, primarily due to the closure of the Strait of Hormuz. Inflation could peak at 4.4 percent if the energy situation worsens further.
In addition to these projections, the World Bank report revises its economic growth forecasts for two-thirds of the world's countries downward from January's projections. It expresses concerns over the lack of progress made by developing nations, excluding China and India, in bridging the per capita income gap with wealthier countries over the past decade. It forecasts that these economies will grow by around 3.6 percent, down from 4.4 percent in 2025, and warns of a "lost decade" due to average public debt surpassing 70 percent of GDP. This debt burden limits governments' ability to implement economic stimulus measures or provide citizen assistance akin to those during the COVID-19 crisis.
To mitigate these potential impacts, the World Bank has prepared emergency aid funds ranging from US$50-60 billion to support social assistance projects in developing countries. It is also prepared to expand this amount to as much as US$100 billion if the conflict persists for the next 15 months.