WASHINGTON: The global economy could slow sharply next year if the conflict between the United States and Iran escalates further, with worldwide growth potentially dropping to 1.3% from 2.9% last year, according to the World Bank’s Chief Economist, Indermit Gill.

Speaking to Reuters, Gill said prolonged hostilities in the Middle East risk triggering a fresh wave of inflation by disrupting energy markets and global supply chains, forcing central banks to keep interest rates elevated and weighing heavily on economic activity.

He said the World Bank had outlined three possible economic scenarios in its June Global Economic Prospects report because of the uncertainty surrounding the conflict. The most severe scenario, involving fighting lasting six months or longer, is now becoming increasingly plausible.

Under that scenario, global inflation could rise to 4.5%, significantly increasing borrowing costs for governments, businesses and households while slowing investment and consumer spending.

Gill warned that continued attacks and damage to energy infrastructure would have consequences extending well beyond oil markets. Disruptions to shipments of key commodities such as fertilisers, sulphur and helium could affect agricultural production, worsen food insecurity and create additional inflationary pressures across the world.

He said low-income countries would be particularly vulnerable, as many are still struggling to recover from the economic impact of the COVID-19 pandemic. Rising global interest rates would make it more expensive for heavily indebted nations to borrow, potentially forcing governments to cut spending on healthcare, education and other essential public services.

Gill, who is due to retire from the World Bank at the end of August, said the outlook remains highly uncertain, with the trajectory of the conflict expected to play a critical role in determining the direction of the global economy over the coming months.