The International Monetary Fund (IMF) said that the conflict in the Middle East is a major supply shock that will test the resilience of a world with limited scope for fiscal support, even as US and Iran have negotiated a two-week ceasefire.
Given the uncertainties around the Middle East conflict, the Washington-based fund will publish a range of scenarios in its World Economic Outlook report next week. But even in the most hopeful case, the IMF is cutting its growth forecasts, managing director Kristalina Georgieva said.
“What we do know is that growth will be slower – even if the new peace is durable,” Georgieva said in prepared remarks Thursday in advance of the IMF and World Bank spring meetings that start next week in DC.
Before the US-Israeli attack on Iran started, the IMF had planned to upgrade its global growth outlook, Georgieva said.
The US and Iran agreed this week to a truce that remains fragile. But the damage to infrastructure and supply chains warrants a downgrade to the economic outlook, even in the most optimistic case, the IMF chief said.
In response to a supply shock that has send oil prices surging and increased food insecurity in many parts of the world, Georgieva urged policymakers to take a careful approach. With many countries bloated with public debt, they cannot afford blanket fiscal support.
“I appeal to all countries to reject go-it-alone actions – export controls, price controls, and so on – that can further upset global conditions: don’t pour gasoline on the fire,” she said.
Her warning comes as OECD chief economist Stefano Scarpetta urged governments that rushed to cut fuel taxes after the start of the Iran war to swiftly phase out costly universal energy subsidies.
More than 25 countries – ranging from Ireland and other EU member states to emerging markets such as Brazil and India – have cut duties on fuel to shield consumers from the energy price shock driven by the conflict. Alternatives, such as price controls, subsidies or cash handouts, have been less widely adopted.
But Scarpetta, who became chief economist at the Paris-based organisation this month, told the FT that tax cuts, while quick to implement, were too expensive to keep in place for long.
The European Commission has also cautioned the EU’s 27 member states not to spend excessively to protect consumers and industries from high oil and gas prices, as that risks tipping the bloc into a fiscal crisis.
Back in January, the IMF slightly raised its outlook for global growth to 3.3 per cent this year, saying economies had been remarkably resilient amid trade and geopolitical tensions.
In its next World Economic Outlook, slated to be published Tuesday, the IMF will offer three scenarios, Georgieva said: a relatively swift return to normal, a middle scenario and a case where oil and gas prices stay much higher for much longer. She didn’t disclose any numbers.
The IMF expects countries to ask $20 billion (€17 billion) to $50 billion for balance of payment needs, Georgieva also said. That’s a sizeable increase on top of the about $140 billion in such type of financing that were outstanding before the war.
The surge in oil prices has raised concerns about consumer prices, complicating the outlook for central bankers around the world. The OECD sees inflation across the Group of 20 averaging about 4 per cent this year, up sharply from its previous estimate. It warned that further disruption to exports from the Middle East could hit growth and unsettle financial markets.
“If inflation expectations threaten to break anchor and ignite a costly inflation spiral, then central banks should step in firmly with rate hikes,” Georgieva said, adding that for now there is value in “waiting and watching.”
Fiscal policy offers less support than in past crises, with governments carrying higher debt after the pandemic that limit their room to respond. Some have introduced subsidies or price caps to shield consumers from rising energy costs, but those measures risk straining public finances if they are not targeted. – Bloomberg / The Financial Times Limited 2026
