The International Monetary Fund (IMF) on Thursday warned that ongoing disruptions from the Iran war are pushing the global economy closer to an adverse scenario characterized by slower growth, tighter financial conditions, and rising inflation risks, according to AFP.
Baseline and Adverse Scenarios
Last month, the IMF's World Economic Outlook projected global growth at 3.1 percent for 2026 under its baseline scenario. However, it cautioned that a prolonged conflict could significantly weaken the outlook. Under the Fund's adverse scenario, where oil prices remain elevated for an extended period, inflation expectations become unstable, and financial conditions tighten, global growth could slow to 2.5 percent.
IMF chief spokesperson Julie Kozack told reporters in Washington: "We are moving into the adverse scenario, but inflation expectations are still reasonably well anchored, and financial conditions still remain accommodative."
The IMF has also outlined a more severe scenario under which global growth could slow to 2 percent while inflation rises to 6 percent. The multilateral lender is expected to release an updated World Economic Outlook in July.
Impact of the Iran War
The ongoing US-Israel war on Iran has disrupted the Middle East and sharply escalated tensions across the region. Retaliatory actions by Tehran have targeted US regional allies and severely affected movement through the Strait of Hormuz. This strategic waterway typically handles nearly one-fifth of global oil and gas supplies, and the disruption has triggered a sharp rise in global energy prices.
Kozack said the IMF was engaged in active discussions with several member countries facing economic pressures from the conflict. "Many countries are actually asking us for support in the policy area," she said.
Financial Assistance and Food Security Concerns
During the IMF's spring meetings last month, Managing Director Kristalina Georgieva indicated that as many as 12 countries may require IMF financial assistance, with total support needs estimated between $20 billion and $50 billion. Kozack said discussions on financial support were continuing but declined to identify the countries involved.
The IMF also flagged rising concerns around global food security as fertilizer supplies have been disrupted due to the blockade-linked disruptions in the region. "We know from history that when fertilizer prices increase, that it takes about six months or so for this to translate into increased food prices and, in some cases, reductions in yields and food security issues," Kozack said.
