Middle East War "Drags Down" the Global Economy? IMF Chief Warns: Slowing Growth and Rising Inflation!

Cailianshe, April 7 (Reporter: Huang Junzhi, Editor: Huang Junzhi) Local time on Monday (the 6th), IMF Managing Director Kristalina Georgieva said that the Middle East war will lead to worsening inflation and slower global economic growth.

The war between Iran and the U.S., which has lasted nearly a month and a half, has triggered the most severe global energy supply disruption in history. Because Iran has blocked the Strait of Hormuz (a key passage for the transport of one-fifth of the world’s oil and natural gas), millions of barrels of oil production have been forced to stop.

The IMF plans to release a new World Economic Outlook next Tuesday (the 14th). According to Georgieva, even if the conflict is resolved quickly, the IMF will still lower its economic growth forecasts and raise its inflation expectations.

In a blog post on March 30, the IMF had hinted that, due to the asymmetric shock caused by the war and tighter financial conditions, it might lower its economic growth forecast. If there were no war, the institution had originally expected its growth forecast to be modestly raised—global economic growth would be 3.3% in 2026 and 3.2% in 2027.

“Instead, now all roads lead to higher prices and slower growth,” Georgieva said.

She also pointed out that the war has reduced global oil supply by 13%, creating ripple effects across related supply chains such as oil and natural gas transportation, as well as supplies like helium and fertilizer.

It is also noteworthy that Georgieva believes that even if hostilities end quickly and the economy recovers soon, it will still lead to a “relatively small” downward revision to the economic growth forecast and an upward revision to the inflation forecast. But if the war drags on, the impact on inflation and economic growth will be greater.

The IMF Spring Meetings are coming up

The IMF and World Bank Spring Meetings, expected to be held in Washington next week, will focus mainly on this war, with financial officials from around the world gathering in one place.

Georgieva added that poor, fragile countries without energy reserves will be hit the hardest, and she noted that many countries have almost no fiscal space to help their populations deal with the price increases caused by the war.

She also further said that the IMF has received some countries’ requests for financing support. The IMF can increase some existing lending programs to meet those countries’ needs. Georgieva did not disclose which countries specifically, but 85% of the IMF’s member countries are energy importers.

It is clear that the impact of this attack is asymmetric: energy importers are hit the hardest, but even energy exporters such as Qatar have felt the effects of Iran’s attacks on its production facilities.

Georgieva said that Qatar expects it will take three to five years to recover about 17% of its natural gas production because the war caused damage. A report from the International Energy Agency said the war has damaged 72 energy facilities, with one-third suffering severe damage.

“Even if the war stops today, it will have lasting negative effects on other parts of the world,” she said.

“Food worries”

Georgieva said the IMF is also consulting with the United Nations World Food Programme (WFP) and the Food and Agriculture Organization on food security issues.

In mid-March, the WFP said that if the war lasts until June, hundreds of millions of people will face severe hunger. Georgieva said the IMF has not yet seen a food crisis, but this could happen if fertilizer supplies are disrupted.