War puts world on road to higher prices, slower growth
War in the Middle East “will lead to higher inflation and slower global growth”, the head of the International Monetary Fund said ahead of next week’s global forecast for the world economy.
The war triggered the worst-ever disruption to global energy supplies; Production of millions of barrels of oil has stalled because Iran has effectively blocked the Strait of Hormuz, which is vital for the transportation of one-fifth of the world’s oil and natural gas.
IMF managing director Kristalina Georgieva told Reuters that “even if the conflict is resolved quickly, the IMF is ready to lower its economic growth forecast and raise the inflation outlook.”
The war is expected to dominate discussions among financial officials from around the world at the IMF and World Bank’s spring meetings in Washington next week.
The fund is expected to publish a number of scenarios in its World Economic Outlook report, which will be published on April 14.
In a March 30 blog post, he signaled a possible downgrade, citing the asymmetric shock of the war and tightening financial conditions.
Without war, Georgieva said, she expects a small increase in the IMF’s forecast for global growth of 3.3 percent in 2026 and 3.2 percent in 2027 as economies continue to recover from the pandemic.
“Instead, all roads now lead to higher prices and slower growth,” said Georgieva, who will preview the spring meetings in her speech on Thursday.
World Bank President Ajay Banga will present his view at an Atlantic Council event on Tuesday.
“We are in a world of increasing uncertainty,” the IMF chief said, citing geopolitical tensions, technological developments, climate shocks and demographic changes.
“All this means that once we get over this shock, we need to keep our eyes open for the next shock.”
Georgieva said the war reduced global oil supplies by 13 percent, the impact of which was reflected in oil and gas shipments and related supply chains such as helium and fertilizer.
Even a quick end to hostilities and a fairly rapid recovery would lead to a “relatively small” downward revision to the growth forecast and an upward revision to the inflation forecast, he said. If the war is prolonged, its impact on inflation and growth will be greater.
Poor, vulnerable countries without energy reserves will be hit the hardest, Georgieva added, noting that many countries have little or no fiscal space to help their people weather price increases caused by war, increasing the likelihood of social unrest.
Georgieva said some countries were already asking for financial assistance, but she did not name them. He said the IMF may increase some existing loan programs to meet countries’ needs. 85 percent of IMF members are energy importers.
He said broad energy subsidies were not the solution and urged policymakers to avoid government payments that could further increase inflationary pressures.
The impact has been asymmetrical, hitting energy importing countries the hardest, but even energy exporters like Qatar are feeling the impact of Iran’s attacks on production facilities.
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