Global Economy: Rising Conflict Fuels Uncertainty
- The global economic landscape is increasingly defined by instability, with conflict and geopolitical tensions posing significant risks to growth and development.
- As of June 27, 2025, the World Bank reported that 421 million people are living on less than $3 a day in the 39 economies grappling with conflict...
- While per capita GDP in other developing economies has expanded by an average of 2.9% annually since 2020, economies affected by conflict and instability have experienced an average...
The global economic landscape is increasingly defined by instability, with conflict and geopolitical tensions posing significant risks to growth and development. A new assessment from the World Bank highlights a particularly concerning trend: extreme poverty is rising at a faster rate in economies affected by conflict and instability than anywhere else in the world. This situation is not merely a humanitarian crisis. it represents a substantial drag on global economic progress and a potential source of further disruption.
Escalating Poverty in Conflict Zones
As of , the World Bank reported that 421 million people are living on less than $3 a day in the 39 economies grappling with conflict or instability. This figure already surpasses the number of people in extreme poverty in the rest of the world combined. Projections indicate this number will climb to 435 million – nearly 60% of the world’s extreme poor – by . This stark reality underscores the difficulty of achieving the global goal of ending extreme poverty, as progress is being actively undermined in the regions where it is most challenging.
The data reveals a widening economic divergence. While per capita GDP in other developing economies has expanded by an average of 2.9% annually since , economies affected by conflict and instability have experienced an average *contraction* of 1.8% per year. This sustained negative growth is creating a vicious cycle, exacerbating existing vulnerabilities and hindering long-term development.
Geopolitical Risks and Economic Performance
The rise in conflict and instability is not occurring in isolation. Broader geopolitical risks, including elections, political polarization, and interstate conflicts, are exerting a significant influence on the global economy. The war in Ukraine and the conflict between Israel and Hamas, compounded by disruptions in the Red Sea, are prime examples of how geopolitical events can directly impact economic performance. These events are affecting financial markets, trade flows, and commodity prices.
According to analysis from the Economic Observatory, geopolitical events impact the global economy through both direct and indirect channels. Direct impacts include capital controls and financial sanctions. Indirect impacts stem from increased uncertainty, higher risk premia, and surges in asset prices. Trade is also disrupted, leading to supply chain problems and potential shortages of key resources like oil and gas, impacting industrial production worldwide.
The Contagion of Instability
The World Bank’s assessment emphasizes the chronic nature of instability in many affected regions. Half of the countries currently facing conflict or instability have been in such conditions for 15 years or more. This prolonged exposure to crisis creates a breeding ground for further instability and hinders sustainable development. Indermit Gill, the World Bank Group’s Chief Economist, noted that Untreated, these conditions become chronic. Misery on this scale is inevitably contagious.
This highlights the potential for regional spillover effects and the need for a coordinated global response.
The concentration of extreme poverty in these fragile states presents a significant challenge. In general, the extreme poverty rate in developing economies has fallen to single digits, reaching just 6%. However, this overall progress is overshadowed by the escalating crisis in conflict-affected areas. The World Economic Forum’s Global Risks Report identifies geoeconomic confrontation, interstate conflict, and extreme weather as the top risks for the year, further illustrating the interconnectedness of these challenges.
Looking Ahead: A Complex Outlook
The confluence of rising geopolitical risks and escalating poverty creates a complex and challenging outlook for the global economy. Elections taking place in at least 64 countries this year add another layer of uncertainty, potentially leading to shifts in trade and investment policies and increased political polarization. S&P Global highlights the ongoing impact of the Russia-Ukraine conflict on European energy security and the regional instability fueled by the Israel-Hamas war.
Addressing these challenges requires a multifaceted approach. Increased international cooperation, targeted aid to conflict-affected regions, and efforts to promote peace and stability are crucial. Strengthening institutions that promote stability and managing geopolitical risks effectively are essential for mitigating the economic fallout and fostering sustainable development. The current trajectory suggests that without concerted action, the gap between thriving and fragile economies will continue to widen, with potentially far-reaching consequences for global prosperity.