Economic shock of Middle East war to cast shadow over IMF, World Bank meetings

Top finance officials from around the world will convene in Washington this week under the shadow of the war in the Middle East, which has delivered a third major shock to the global economy after the COVID pandemic and Russia's full-scale invasion of Ukraine in 2022.



Top International Monetary Fund and World Bank officials last week said they would downgrade their forecasts for global growth and raise their inflation predictions as a result of the war, warning that emerging markets and developing countries will be hit hardest by higher energy prices and supply disruptions.

Before the Iran war broke out on February 28, both institutions had expected to lift their growth forecasts given the resilience of the global economy - even in the wake of major tariffs imposed by U.S. President Donald Trump beginning last year.



But the war has delivered a series of shocks that will slow progress on recovering growth and beating back inflation.



The World Bank's baseline estimate now projects growth in emerging markets and developing economies of 3.65% in 2026, down from 4% in October, but sees that number dropping as low as 2.6% if the war lasts longer.



Inflation in those countries was now forecast to hit 4.9% in 2026, up from the previous estimate of 3%, and could spike as high as 6.7% in the worst case.