WASHINGTON, DC – AMID the ongoing war in Iran, the International Monetary Fund (IMF) says the global economy is facing renewed uncertainty, as the Middle East conflict threatens to derail what had been a promising growth trajectory.
During a press conference today (Apr. 14) at the International Monetary Fund and World Bank Spring Meetings in Washington, DC, IMF Director of Research Pierre-Olivier Gourinchas said global economic momentum at the end of last year was stronger than expected, supported by resilient private sector activity, favourable financial conditions, and a surge in technological innovation.
However, he warned that recent developments in the Middle East could significantly disrupt that progress.
“The closing of the Strait of Hormuz and serious damage to critical energy facilities in the Middle East have raised the prospect of a major energy crisis if a lasting solution is not found soon. Oil and gas prices have risen sharply, along with diesel and jet fuel, as well as fertiliser, aluminium, and helium,” he said.
According to the IMF, these rising energy costs are already rippling through the global economy, pushing up the price of fuel, fertiliser, and other key industrial inputs. This is expected to drive inflation higher while slowing economic growth.
The Fund now projects global growth at 3.1 percent this year, a downgrade from its earlier forecast, with inflation expected to rise to 4.4 percent. In a more adverse scenario, growth could fall to 2.5 percent, while a severe and prolonged energy shock could push growth down to 2 percent, with inflation exceeding 6 percent.
Gourinchas said the economic impact will be driven by three main factors: rising commodity prices acting as a supply shock, the risk of wage-price spirals as businesses and workers respond to higher costs, and tighter financial conditions, including capital outflows and currency pressures.
“Downside risks are clearly very elevated, and the impact of the war will be uneven. Low-income energy importers are especially vulnerable, particularly those with existing economic weaknesses and limited buffers,” he added.
The IMF is advising central banks to remain vigilant but measured, allowing exchange rates to adjust while standing ready to act if inflation expectations begin to shift. On the fiscal side, governments are being urged to avoid broad subsidies and instead provide targeted support to vulnerable populations.
Despite the near-term risks, the Fund says the crisis also highlights the need to accelerate the transition to renewable energy, while also harnessing advances in artificial intelligence to boost productivity.
The IMF also warned that rising geopolitical tensions and shifting trade relationships are reshaping the global economic landscape.
