World Bank's chief regional economist warns of 'cycle of poverty' in Gaza

Child malnutrition has repercussions that last a lifetime, Roberta Gatti says

Internally displaced Palestinians carry bags of flour near a food distribution point in Zikim, northern Gaza, on July 27. EPA

Poverty in Gaza can carry over to several generations due to child malnutrition and a mental health crisis that have developed since the outbreak of war in 2023, the World Bank's chief economist for the Middle East, North Africa, Afghanistan and Pakistan region has said.

Two years since the Gaza war began after Hamas launched a deadly attack on Israel, food prices there have rocketed due to the destruction of its agricultural sector and economy, and restrictions on humanitarian access.

About 132,000 children under the age of five are expected to suffer from acute malnutrition by June 2026, according to data from the Integrated Food Security Phase Classification (IPC).

“The impact of food inflation on children malnutrition, particularly in the formative years of children between zero and five, has repercussions over a lifetime,” Roberta Gatti said after the release of the World Bank's most recent economic update on the region.

The World Bank warned that children in such conditions could face irreversible consequences including cognitive impairment and increased vulnerability to disease, which could also threaten work productivity.

The IPC in August said more than 640,000 people in the Gaza Strip will face catastrophic levels of food insecurity by September, with another 1.14 million in a food emergency.

“There's also a mental health crisis that is ongoing in Gaza that will affect not only this generation, but can have repercussion over generations," Ms Gatti said. "So there is new evidence that shows that the cycle of poverty and trauma goes beyond the generation that is initially affected."

The World Bank economist said the conflict's economic effects were similar to concentric circles, with the crisis in Gaza as its centre.

The impact of food inflation on children malnutrition, particularly in the formative years of children between zero and five, has repercussions over a lifetime

Roberta Gatti,
World Bank

Gaza's economy fell by another 12 per cent on an annual basis in the first quarter this year, after contracting by 83 per cent in 2024, with its infrastructure largely destroyed. World Bank data assesses reconstruction and recovery needs to top $53 billion.

Ms Gatti said the war's effects have spilt over into the West Bank, which has had a drop in activity due to a broad revocation of permits for Palestinians to work in Israel. The World Bank forecasts the West Bank and Gaza economy to grow by 3.9 per cent as a whole this year after a 27 per cent contraction last year, although it said it “primarily reflected a low-base effect”.

Neighbouring countries have also suffered through a loss of tourism revenue and changes in shipping patterns through the Red Sea. The World Bank estimated Egypt faced about a $11 billion drop in revenue and foreign exchange between December 2023 and July 2025, with shipping traffic rerouting along the Cape of Good Hope.

The economic impact of the war across the entire region has so far been contained, Ms Gatti said, due to the limited trade ties between the east and western parts of the region.

But she said conflict “continues to cast a shadow on the region” because of instability through the displacement of people.

“Just think about the millions of people who have now returned to Afghanistan,” Ms Gatti said.

Between 1.5 million and 2.1 million Afghans have returned from Iran and Pakistan during the first seven months of this year, the World Bank said, which has greater pressure on the country's labour market and services sector. The World Bank estimates that between 15.2 million and 23.8 million Afghans may be living in extreme poverty.

About 2.6 million Syrians also returned home by the end of August after the fall of the regime of former president Bashar Al Assad last year, placing more pressure on the country's infrastructure.

Ms Gatti said she is hopeful after developments in Syria since the fall of the Assad regime, noting the central bank's efforts to re-establish the country's financial sector.

'Cautiously optimistic'

The World Bank on Tuesday raised its growth prospects for the Middle East and North Africa to 2.8 per cent, up by 0.2 percentage points from its April forecast.

The World Bank does not anticipate US tariff increases to have a meaningful effect on the region's growth prospects. While tariffs' knock-on effects could affect oil and gas, Ms Gatti said there could also be some potential gains for the region, including the possible relocation of production.

Gulf economic growth is forecast to grow by 4.8 per cent, also up by 0.2 percentage points, partly driven by Opec+'s unwinding of voluntary production costs. Ms Gatti said the region's diversification efforts are also paying off, pointing to the UAE's investment in technology and Saudi Arabia's investments in tourism and hospitality.

“We're cautiously optimistic for the region, although we continue to acknowledge the uncertainty and the risk that come from conflict that weighs really heavily on our region,” she added.

But Ms Gatti also said the region continues to face “untapped potential”, pointing to its low female labour force participation, which in the Middle East and North Africa is about 20 per cent, well below the global average.

The World Bank said the share of elderly people in the region could rise to almost 9.5 per cent by 2050, while birth rates are sharply declining. Ms Gatti said integrating more women into the workforce by 2050 could help prevent the region from harming sustainability of healthcare and pension spending, as well as long-term growth and fiscal accounts.

“When I think about female labour force participation, I really think about money left on the table. The gains from bringing women into the workforce and having a dynamic private sector that creates jobs are really huge for our region,” Ms Gatti said.