IMF-World Bank brace for slowdown as West Asia war rattles global economy

The economic fallout from the ongoing conflict in West Asia is set to cast a long shadow over this week’s Spring Meetings of the International Monetary Fund and the World Bank, as policymakers grapple with a fresh global shock that threatens to derail a fragile recovery.

The war—triggered by escalating hostilities involving Iran, Israel and the United States—has emerged as the third major economic disruption in recent years, following the COVID-19 pandemic and the Russia-Ukraine war. Together, these shocks have compounded vulnerabilities across global markets, particularly in emerging and developing economies.

Growth downgrade, inflation risks rise

Top officials from both institutions have already signalled a downgrade to global growth forecasts alongside upward revisions to inflation projections, driven largely by surging energy prices and supply chain disruptions linked to the conflict.

Prior to the outbreak of hostilities in late February, there had been cautious optimism about a global recovery, underpinned by resilient economic activity despite trade tensions and tariffs imposed under Donald Trump. That optimism has now faded.

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The World Bank’s baseline projections show growth in emerging markets and developing economies slowing to 3.65 per cent in 2026 from an earlier estimate of 4 per cent. In a prolonged conflict scenario, growth could fall as low as 2.6 per cent. Inflation, meanwhile, is expected to rise to 4.9 per cent, with worst-case projections nearing 6.7 per cent.

Food insecurity, debt stress intensify

The IMF has warned that as many as 45 million additional people could face acute food insecurity if the conflict continues to disrupt fertiliser supplies and food chains.

The crisis is unfolding at a time when many low-income countries are already burdened by record levels of public debt and constrained fiscal space. The IMF estimates that demand for emergency financing could range between $20 billion and $50 billion in the near term, particularly from energy-importing nations.

The World Bank, for its part, has indicated it could mobilise up to $25 billion in immediate crisis support, with the capacity to scale up to $70 billion within six months if conditions worsen.

Calls for targeted support, structural reform

Policymakers and economists are urging governments to avoid broad-based subsidies that could fuel inflation, instead advocating targeted and temporary measures to cushion the most vulnerable populations.

Ajay Banga described the situation as a “shock to the system,” while underscoring that lessons from past crises—particularly disciplined fiscal and monetary responses—could help economies navigate the turbulence.

Fragmented global coordination

Efforts to coordinate a global response are further complicated by geopolitical tensions, particularly between United States and China, and fractures within the Group of 20.

The US, which currently holds the G20 presidency, has excluded South Africa from participation, highlighting the challenges of forging consensus in an increasingly polarised global environment.

Analysts warn that such fragmentation could weaken the effectiveness of multilateral responses at a time when coordinated action is most needed.

Debt trap fears resurface

Experts say the latest shock risks pushing vulnerable economies deeper into a cycle of debt distress and low growth. Many countries are already allocating a significantly larger share of revenues to debt servicing than before the pandemic, leaving limited resources for essential sectors such as health and education.

Calls are growing for more ambitious reforms tied to financial assistance, including accelerated debt restructuring and broader relief measures. Economists argue that new lending must be linked to credible plans for reducing debt burdens and restoring long-term sustainability.

As the meetings begin in Washington, the central message from global financial leaders is clear: while the current crisis is serious, it remains manageable—provided governments act decisively and international institutions deliver timely support.

Yet with risks mounting and policy space narrowing, the coming weeks could prove pivotal in determining whether the global economy weathers yet another storm—or slips into a more prolonged period of instability.