IMF to cut global growth forecast due to Middle East war

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Washington – The International Monetary Fund (IMF) will lower global growth forecasts due to the Middle East war, its chief said on April 9, warning of the conflict’s “scarring effects” despite a fragile ceasefire.

“Even in a best case, there will be no neat and clean return to the status quo ante,” IMF managing director Kristalina Georgieva said.

Even in the fund’s “most hopeful scenario”, she added, spiralling energy costs, infrastructure damage, supply disruptions and a loss of market confidence mean growth would be less than expected.

The IMF anticipates providing up to US$50 billion (S$63.7 billion) in immediate financial assistance to countries affected by the war, with food insecurity set to affect at least 45 million people.

“Given the spillovers from the war, we expect near-term demand for IMF balance-of-payments support to rise by somewhere between US$20 billion and US$50 billion, with the lower bound prevailing if (the) ceasefire holds,” she said.

Ms Georgieva was kicking off the annual spring meetings the IMF co-hosts with the World Bank in Washington, which bring together top economic policymakers from around the world.

The US-Israel war on Iran, launched on Feb 28, has engulfed the Middle East in violence, snarled supply chains and sent oil prices surging after Tehran virtually blocked the Strait of Hormuz.

Tehran and Washington have traded accusations of violations of the ceasefire terms, with talks aimed at a more durable peace slated for April 11.

Ms Georgieva highlighted the “asymmetric” effects of the crisis, hitting low-income energy importers much harder than others.

“Spare a thought for the Pacific island nations at the end of a long supply chain, wondering if fuel still reaches them in the wake of such a severe disruption,” she said.

Global inflation

On April 8, the World Bank said the Middle East – which has seen retaliatory Iranian strikes hit countries in the Gulf and Israeli attacks in Lebanon – saw “a serious and immediate economic toll” from the war.

Excluding Iran, overall regional economic growth was expected to slow to just 1.8 per cent in 2026 – down from the previous forecast of 4.2 per cent before the war, the bank said.

The IMF is expected to revise global headline inflation upwards due to the oil price and supply chain shocks associated with the war.

On April 8, the heads of the IMF, World Bank and World Food Programme met in Washington to discuss the economic and food security impacts.

“Sharp increases in oil, gas and fertiliser prices, together with transport bottlenecks, will inevitably lead to rising food prices and food insecurity,” they said in a joint statement.

The IMF and World Bank have formed a coordination group to address the energy market impacts of the war. A top-level meeting of that body will take place on April 13.

As part of the meetings, the IMF will release its annual Fiscal Monitor report, which is expected to flag rising government debt as countries tackle repeated economic shocks.

In a report this week, the IMF detailed the economic costs of war, estimating that output in countries where fighting takes place drops by 3 per cent at the outset, “and continues falling for years”.

An earlier report on the Iran war said “all roads lead to higher prices and slower growth”, and highlighted the impact of a severely disrupted fertiliser supply chain on food security.

“Low-income countries are especially at risk of food insecurity; some may need more external support, even as such assistance has been declining,” the report said. AFP