Middle East war means ‘all roads’ lead to higher prices, slower growth

WASHINGTON: The war in the Middle East will lead to higher inflation and slower global growth, the head of the International Monetary Fund said on Monday, ahead of a forecast for the world economy planned by the global lender for next week.
The war has triggered the worst-ever disruption in global energy supply, with millions of barrels of oil production shuttered due to Iran's effective blockage of the Strait of Hormuz, crucial for shipping one-fifth of the world's oil and gas. Even if the conflict is swiftly resolved, the IMF is set to reduce its forecast for economic growth and bump up its outlook for inflation, Kristalina Georgieva, managing director of the IMF, said.
The war is expected to dominate discussions among finance officials from around the world at next week's spring meetings of the IMF and World Bank in Washington.
The Fund is expected to release a range of scenarios in its upcoming World Economic Outlook due on April 14. It signaled a possible downgrade in a March 30 blog post, ⁠citing the asymmetric shock of the war and tighter financial conditions. Without the war, Georgieva said the IMF had expected a small upgrade in its projection for global growth of 3.3% in 2026 and 3.2% in 2027 as economies continue to recover from the pandemic.
'Instead, all roads now lead to higher prices and slower growth,' said Georgieva, who will preview the spring meetings in a speech on Thursday. World Bank President Ajay Banga will present his view at an Atlantic Council event on Tuesday.
'We are in a world of elevated uncertainty,' the IMF chief said, citing geopolitical tensions, technological advancements, climate shocks and demographic shifts. 'All of this means that after we recover from this shock, we need to keep our eyes open for the next one.'
The war has shrunk global oil supply by 13%, Georgieva said, with the impact rippling through oil and gas shipments and into related supply chains such as helium and fertilizers.
Even a rapid end to hostilities and a fairly rapid recovery will result in a 'relatively small' downward revision of the growth forecast and an upward revision of its inflation forecast, she said. If the war is protracted, the effect on inflation and growth will be greater. — Reuters