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IMF Chief Warns of 'Much Worse' Global Economy as Iran War Drags On

IMF Managing Director Kristalina Georgieva warned that the global economy could face a "much worse outcome" if the Middle East war drags on into 2027, with oil prices potentially reaching $125 per barrel. She noted that current conditions have already activated the IMF's "adverse scenario," projecting global growth of 2.5% and inflation of 5.4% in 2026. Under a severe scenario, growth could slow to just 2% with inflation hitting 5.8%. Meanwhile, oil prices declined after US President Donald Trump announced steps to help clear vessels stranded in the Strait of Hormuz.

Key Points: IMF Warns of Severe Global Economy Impact from Iran War

  • IMF warns of 'much worse outcome' if Iran war continues into 2027
  • Oil prices could hit $125 per barrel
  • Global growth may slow to 2% under severe scenario
  • Inflation could rise to 5.8% in worst case
2 min read

IMF chief warns of 'much worse outcome' for global economy as Iran war drags on

IMF's Kristalina Georgieva warns of rising inflation and slower growth if Middle East conflict persists, with oil prices potentially hitting $125 per barrel.

"We are going to see inflation climbing up, and then inevitably, inflation expectations would start de-anchoring. - Kristalina Georgieva"

New York, May 5

International Monetary Fund Managing Director Kristalina Georgieva warned that the global economy would face a "much worse outcome" if the Middle East war drags on into 2027, with oil prices hitting around 125 dollars per barrel.

"We are going to see inflation climbing up, and then inevitably, inflation expectations would start de-anchoring," she said at a conference hosted by the Milken Institute in Washington, D.C., on Monday (local time).

She noted that current conditions, including a prolonged conflict, oil prices hovering at or above 100 US dollars per barrel, and mounting inflationary pressures, have already activated the IMF's "adverse scenario," reports Xinhua news agency.

In April, the IMF issued three scenarios for global GDP growth in 2026 and 2027, namely the main "reference forecast," a middle "adverse scenario," and a much worse "severe scenario."

Under the adverse scenario, global growth would slow to 2.5 per cent in 2026, while inflation would rise to 5.4 per cent.

The reference scenario, which assumes a short-lived conflict, projects growth of 3.1 per cent and inflation of 4.4 per cent.

"This scenario, with every day that passes, is further and further behind in the rear-view mirror," Georgieva said.

For the severe scenario forecast, global growth would be just 2 per cent, with inflation hitting 5.8 per cent.

Meanwhile, global crude oil prices declined almost 3 per cent on Monday after US President Donald Trump said Washington would take steps to help clear vessels stranded in the Strait of Hormuz, though the lack of a breakthrough in US-Iran talks kept prices above the $100-mark.

International benchmark Brent crude slipped 66 cents or 0.61 per cent to $107.51 per barrel, while US West Texas Intermediate (WTI) fell $2.83 or 2.77 per cent to $99.11 a barrel.

- IANS

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Reader Comments

S
Sarah B
Honestly, the IMF always paints a grim picture, but let's not forget how resilient India has been. During the Russia-Ukraine war, we managed to get discounted oil. Maybe we need to think creatively again. Still, the situation in Iran is deeply concerning.
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Priya S
I'm a small business owner, and this news keeps me up at night. Raw material costs are already up 30% in the last year. If this war continues, people will lose jobs, and the common man will suffer the most. Why can't world leaders just sit and talk instead of fighting? 😞
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Rahul R
The IMF is right to be worried, but I feel the 'adverse scenario' is already playing out in front of our eyes. Look at how global supply chains are strained. And the irony is that oil prices dipped today only because Trump said something about clearing vessels. It's all so fragile.
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Michael C
As someone who works in the energy sector, I can tell you that $100+ oil is already causing panic. India imports 80% of its crude, so this directly hits our current account deficit and rupee value. The RBI and Finance Ministry need to be proactive, not reactive.
K
Kavya N
This is why we need to accelerate renewable energy in India. Why should our economy be held hostage by conflicts in the Middle East? Every rupee spent on solar panels and wind turbines is a rupee saved from oil imports. The government should give more subsidies for rooftop solar! ☀️

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