World Bank’s worst-case scenario for global growth is rapidly approaching

The renewed US-Iran conflict could fuel inflation and more than halve global growth. The revived inflationary pressures could push interest rates higher and slash global growth to as low as 1.3%, down from 2.9% last year, World Bank Chief Economist Indermit Gill told Reuters. The bank’s June outlook modeled three scenarios, with the worst-case assumption of the conflict lasting six months already coming close to materializing.

Global headline inflation would climb to 4.5% under this scenario. A prolonged conflict that damages the region’s oil infrastructure would also disrupt supplies of fertilizer, helium, and sulfur, worsen food insecurity, and send shockwaves through the global economy, including higher interest rates.

Developing countries that have yet to recover from the pandemic would be hit the hardest. Rising inflation could leave heavily indebted economies struggling to service their debt within months, while higher food prices and borrowing costs would squeeze spending on healthcare, education and other essential services.

Signs of strain are already emerging: Several financially strained countries asked the IMF to expand existing lending programs, while Pakistan this week requested a USD 10 bn exchange stabilization facility from the US, the newswire reports, citing a source it says is familiar with the matter. The World Bank’s June outlook showed that 32 low- and middle-income economies are already in debt distress or at high risk of falling into it, a figure Gill warned could rise if interest rates increase.

“It’s a slow-moving train wreck,” Gill said. Even countries that avoid default would be forced to sacrifice spending on education, healthcare and other long-term priorities to keep up with debt repayments, he added. World Bank data showed that the average debt-to-GDP ratio for developing economies rose to 74% in 2025 from 50-55% before Covid-19. The ratio increased to 67% from about 40% among low-income economies.

The US, China, and India are the only exceptions so far, remaining insulated from the conflict due to their economic resilience buffers, while developing countries are being challenged by more difficult risks. The G20 countries made efforts to improve the global debt restructuring framework, despite the reforms being slow so far.

Looking ahead, AI can become key for developing economies to become more resilient, supporting their evolution even more than advanced economies, Gill said. A World Bank analysis found that AI is likely to negatively affect only around 10% of people in poorer countries, compared with 30-40% in wealthier economies. “AI can be a huge gain for them,” Gill said, adding that developing countries should be more optimistic about the technology’s potential than advanced economies, even if any boost to economic growth takes over a decade to materialize.

MARKETS THIS MORNING-

Asian markets are mixed this morning, with Japan’s Nikkei up 0.9% while Hong Kong’s Hang Seng is down 0.1% and the Shanghai Composite is down 0.2%. Meanwhile, Wall Street futures are leaning towards the green as investors anticipate fresh earnings and weigh oil price trajectory.

THE CLOSING BELL-

The ADX fell 0.1% yesterday on turnover of AED 809.6 mn. The index is down 2.2% YTD.

In the green: Invest Bank (+3.6%), Burjeel Holdings (+1.7%), and Abu Dhabi Ports Company (+1.6%).

In the red: Phoenix Group (-4.9%), Emirates Mobility Company (-4.6%), and Ins. House (-3.9%).

Over on the DFM, the index fell 0.5% on turnover of AED 402.6 mn. Meanwhile, Nasdaq Dubai was down 0.2%.