IMF chief warns of ‘much worse outcome’ if war drags on
The head of the International Monetary Fund has warned that inflation is already recovering and the global economy could face a “much worse outcome” if the war in the Middle East drags into 2027 and oil prices reach around $125 per barrel.
IMF managing director Kristalina Georgieva said the continuation of the war meant the global lender’s “reference scenario”, which assumed a short-lived conflict that predicted a small slowdown in growth to 3.1 percent and a slight increase to 4.4 percent, was no longer possible.
“This scenario is becoming more and more in the rearview mirror every day,” Georgieva said.
He said the continuation of the war, the forecast oil price of around or above US$100 per barrel and increasing inflationary pressures meant the IMF’s “downside scenario” was already in effect.
Long-term inflation expectations remain stable and financial conditions are not tightening, but that could change if the war continues, he told a conference hosted by the Milken Institute on Monday.
“Now, if this continues into 2027 and our oil prices are more or less $125, then we have to expect a much worse outcome,” he said.
“Then we’ll see inflation rising, and inevitably the anchor of inflation expectations will start to come apart.”
In April, amid great uncertainty about the war in the Middle East, the IMF published three scenarios for the global GDP growth path in 2026 and 2027: the main “reference forecast,” the middle “negative scenario,” and the much worse “severe scenario.”
The downside scenario predicts global growth will slow to 2.5 percent in 2026 and headline inflation will be 5.4 percent. In the severe scenario, growth is estimated to be only two percent and headline inflation is estimated to be 5.8 percent.
Speaking at the same panel, Chevron chairman and CEO Mike Wirth said that physical shortages in oil supply will begin to emerge worldwide due to the closure of the Strait of Hormuz, through which 20 percent of global crude oil supply passed before the war.
Wirth said economies will begin to contract first in Asia as demand adjusts to meet supply as the strait remains closed due to the US-Israel war with Iran.
Georgieva said the IMF was carefully monitoring the slow-moving impact of the conflict on supply chains, with fertilizer already 30 percent to 40 percent more expensive, which would increase food prices by 3 to 6 percent. Other sectors may also be affected.
“What I want to emphasize is this is really serious,” he said, expressing concern that many policymakers are still acting as if the crisis will be over in a few months and are taking measures to reduce the impact on consumers and businesses that keep oil demand high.
“Don’t throw fuel on the fire,” he said. “Everyone in this room knows that if your supply decreases, your demand must increase.”
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