Economists warned Wednesday that the Iran war and trade disruption are weighing on the global economy, slowing global growth amid rising geopolitical tensions, rising debt burdens and uncertainty over the economic impact of artificial intelligence.
The debate comes after the World Bank cut its 2026 global growth forecast to 2.5% from last year’s estimated 2.9% pace, citing concerns about war, trade fragmentation and weak investment. The World Bank also lowered its 2026 growth forecast for the Middle East, North Africa, Afghanistan and Pakistan region from 1.8% to 1.6%.
Despite the bleak outlook, Jan Hadzius, chief economist at Goldman Sachs, argued that AI has the potential to significantly boost productivity and economic growth over the next decade.
“When you look at these kinds of long tables and dinner parties, if you look at the topics that come up, the top 10, eight, nine are negative and negative,” Hadsius said at an event at the New York Council on Foreign Relations.
“But there is one big positive: I believe that potential productivity growth and ultimately potential GDP growth is accelerating.”
He said a wave of large-scale investment in AI infrastructure was already supporting economic activity, and estimated that AI could “boost productivity growth by about 1.5 percentage points annually over a 10-year transition period.”
Given these expectations, Goldman Sachs has raised its long-term GDP growth forecast to 2.5% now from 1.75% before the pandemic.
“Overall, I’m more concerned about the general sense that in the absence of political resistance, debt could simply increase exponentially,” he said.
Natasha Salin, founder of the Yale Budget Institute, said emerging markets are bearing the brunt of the economic fallout from the conflict.
“I think it’s accurate to say that emerging markets are actually the hardest hit by the developments we’ve seen as a result of this war,” Sarin said during the event.
He noted that many African economies entered the year with optimism after recovering from the shock of the COVID-19 pandemic and the war in Ukraine, but the outlook has deteriorated sharply.
“The energy market has been massively disrupted,” she said. “Significant increases in oil prices are putting a huge strain on us, and frankly, even if we reach some sort of solution, it will take months, if not years, for this energy infrastructure, market and supply chain to truly return to normal.”
OPEC earlier Thursday predicted global oil demand would rise to 113.3 million barrels per day in 2030, unchanged from last year’s World Oil Outlook report. The closure of the Strait of Hormuz and attacks on key energy facilities have forced Gulf exporters to make significant export cuts this year.
Sarin said the disruption extends beyond crude oil, with delays in shipments of refined products putting further strain on developing economies.
“We’re also seeing significant delays in shipments of critical products, particularly refined products, arriving so slowly that it’s impacting the economy. Frankly, there’s not a lot of resilience for these countries to withstand at this point,” she said.
Doug Rediker, managing partner at International Capital Strategies, said the economic fallout from recent Middle East conflicts could be overshadowed by broader geopolitical implications.
“The main outcome of the Iran war, regardless of which way it ends or if it ends at all, will be strategic rather than economic,” Rediker said.
International Monetary Fund Managing Director Kristalina Georgieva said in a blog post earlier this week that while inflation expectations, financial conditions and commodity prices have been affected by the war, the global economy has so far weathered the impact of the Iran conflict.
“The sooner there is a solution, the better, because restoring supplies will take time, especially given the extensive damage to infrastructure,” Georgieva wrote, adding that she welcomed the peace agreement.
“However, if conflict and turmoil intensify, this poses a clear risk to global growth.”
