The war in Iran will have a lasting impact on the global economy warns the IMF

The conflict in the Middle East is expected to weigh on the global economy and push around 45 million people into food insecurity, with the risk increasing further, warned IMF Managing Director Kristalina Georgieva on Thursday.

Kristalina Georgieva spoke during her traditional curtain-raiser speech, which marks the start of the spring meetings of the International Monetary Fund (IMF) and the World Bank, scheduled in Washington from Tuesday to Friday.

The IMF is set to release an updated version of its World Economic Outlook (WEO) report on Tuesday, which is expected to take into account the impact of the conflict on the global economy.

While “we should have moved towards an upward revision of global growth,” the war now means that “even our best-case scenario includes a downward revision of growth,” emphasized Ms. Georgieva.

However, given the uncertainty, “it will include a range of scenarios from a relatively quick normalization” of the geopolitical situation “to one where oil and gas prices remain high much longer and where repercussions set in.”

The head of the IMF added that the institution anticipates an additional demand for support from member countries “ranging somewhere between 20 billion and 50 billion dollars, at the lower end if the ceasefire holds.”

But “it would have been worse without strong policies from most emerging economies (…) and we have the necessary resources to deal with this shock,” reassured Ms. Georgieva.

The sharp rise in energy prices and disruptions in the supply of oil, liquefied natural gas (LNG), and fertilizers, however, could trigger “food insecurity for at least 45 million people,” bringing the total “of people suffering from hunger to over 360 million,” expressed concern the IMF Managing Director.

“Even in the best case scenario, there will be no clean and clear return” to the situation before the outbreak of hostilities.

– “Wait and assess” –

At the same time, this new energy shock could “challenge the anchoring” of inflation expectations by markets and “cause a new cycle of costly inflation” for the global economies.

“The damage to infrastructure, supply disruptions, loss of confidence, and other effects” are the cause; “growth will be slower, even if the new peace is sustainable.”

However, the effect is not felt uniformly in all regions of the world, impacting more strongly oil-importing and low-income countries with limited budget margins.

“Let’s think about the Pacific island nations, at the end of the supply chain, who don’t know if they will receive the energy they need due to these major disruptions,” added the head of the Fund.

In a report released on Wednesday, the World Bank noted that Middle Eastern countries had paid “an immediate and serious economic cost” for the war.

The region is expected to see its growth lowered by 0.6 point, compared to pre-war forecasts, to 1.8% in 2026, the World Bank added.

Faced with such a situation, governments “can help in different ways,” assured Ms. Georgieva, but must avoid any actions such as export controls or price controls.

In the immediate term, “there is an interest in waiting and assessing” how the geopolitical situation will evolve, but if inflation expectations change, “central banks need to act decisively with rate hikes.”

As for fiscal policies, they can incorporate “very carefully calibrated demand support,” but “only if states have the necessary fiscal margins,” emphasized the head of the IMF.