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

A prolonged war involving Iran could pull global economic growth this year down to its weakest level since the Covid-19 pandemic, CNN reported on June 11, citing a World Bank forecast. An escalation in the fighting and deeper supply-chain disruptions would add to stagflationary pressure on the global economy.

In its Global Economic Prospects report released that day, the World Bank forecast global growth of 2.5% this year, down 0.4 percentage point from 2.9% last year.

The bank said renewed hostilities or prolonged disruptions to commodity flows would send commodity prices surging, intensify inflationary pressure and deepen food insecurity. That, in turn, could trigger global financial stress and further slow growth.

The report identified near-paralysis in maritime logistics through the Strait of Hormuz as a key risk, with prices for crude oil, natural gas and fertilizer already climbing sharply. It warned that global growth could fall to just 1.3% this year if energy supply disruptions prove more severe than assumed and are accompanied by severe financial market strains.

Developing economies stand to bear the brunt of the war, the report said. Growth in all developing countries is projected to weaken this year from last year. Excluding China and India, per capita income in developing economies is not projected to recover to pre-pandemic levels until after 2028.