Trump’s Iran war could trigger global recession, IMF warns
Donald Trump’s war on Iran risks triggering a global recession, the International Monetary Fund (IMF) has warned in its latest assessment of the conflict’s impact on the world economy.
The influential financial institution said the international outlook had “suddenly darkened” as a result of the war, which threatened to throw the global economy “off course” and could cause an energy crisis on an unprecedented scale. The organization warned that a worldwide recession could be an “imminent danger” in a severe scenario of further turmoil as oil and gas prices continue to rise.
Among major economies, the UK faces the biggest hit to growth, with forecasts cut for the next two years. In another blow to Sir Keir Starmer, the IMF warns that inflation and unemployment will also increase.
Hopes of easing tensions in the Middle East rose Tuesday after President Trump said ceasefire talks with Iran could restart “within the next two days.” There were also reports that Tehran was considering pausing shipments through the Strait of Hormuz in an attempt to get negotiations back on track.
But the US president offered further criticism of Britain, reiterating his call for Britain to expand oil and gas drilling in the North Sea to deal with the growing energy crisis.
Chancellor Rachel Reeves criticized Trump’s “stupidity” in starting a war without a clear exit strategy, saying she was “very frustrated and angry” with America’s actions in the Middle East before heading to Washington for the IMF spring meeting, where she will encourage other countries to work together to respond to the crisis.
In its latest economic outlook, the IMF predicted that Britain’s economic growth following the war would be weaker than previously predicted, with GDP growing by 0.8 percent this year and 1.3 percent next year. That’s below forecasts of 1.3 percent this year and 1.5 percent for 2027, both of which occurred as recently as January. The UK economy grew by 1.3 percent last year.
The IMF also predicts that inflation in the UK will rise to an average of 3.2 percent this year and 2.4 percent next year due to higher energy prices, more expensive fuel and rising food costs. Previously, the averages were estimated at 2.5 percent and 2 percent. Petrol prices have already risen 19 percent since the conflict began, while the cost of diesel has risen by more than a third.
In another blow to the UK, the IMF predicts unemployment will rise from 4.9 percent last year to 5.6 percent this year.
IMF economic advisor Pierre-Olivier Gourinchas said in the foreword to the latest report that the international outlook had “suddenly darkened”, diverting the global economy from the path of stable growth.
He added: “Closing the Strait of Hormuz and severely damaging critical production facilities in a region that is the center of global hydrocarbon supply could cause an energy crisis on an unprecedented scale.”
The IMF said the serious consequences of the war in the Gulf in the coming months would mean global growth could be cut by 1.3 percentage points in 2026.
“This would mean a close call for a global recession (growth rate below 2 percent), which has occurred only four times since 1980, with the last two events corresponding to the global financial crisis and the Covid-19 pandemic,” the report said.
When it comes to the UK, the IMF said both the war in the Middle East and weak national growth at the end of last year were responsible for the UK’s downgrade. In response, shadow chancellor Sir Mel Stride said: “Giving the biggest downgrade in the G7 is a clear verdict on Rachel Reeves’ preferences – and she has no one to blame but herself. The chancellor increased national insurance in his first budget, doubling inflation and causing unemployment to soar. He is bankrupting the hospitality industry with business rates rises and planning the first increase in fuel duty in 15 years. His ‘plan’ to keep costs down We are a country with the highest inflation in the G7, where businesses are closed and the cost of living is rapidly increasing.
“The Conservatives are urging international partners to see Rachel Reeves as a cautionary tale of what can happen when a politician has no idea what they are doing and chooses to ruthlessly undermine the job.”
Ms Reeves said the war “will come at a cost to Britain” but stressed the government was “strengthening Britain’s energy security, supporting British industry and protecting households to build a stronger, more resilient and future-proof Britain”.
