The International Monetary Fund (IMF) has issued a striking warning about the impact of the war launched against Iran in the Middle East on the global economy.
A blog post published by the institution’s chief economists stated that the conflicts that began with the US and Israeli attacks on February 28 have weakened the outlook for many economies that were already in a recovery phase.
According to the IMF, war creates an “asymmetric shock” on a global scale, causing serious economic disruptions, especially in countries directly affected by the conflict, and leading to a tightening of financial conditions. Iran’s closure of the Strait of Hormuz and the damage inflicted on infrastructure in the region caused a shock of historical proportions in energy markets. According to the International Energy Agency (IEA), these developments constituted one of the largest disruptions in the global oil market to date.
The magnitude of the economic impact of the war will depend on the duration of the conflict, its geographical spread, and the extent of the damage it causes to infrastructure and supply chains. The IMF points out that low-income countries, in particular, face a risk of food insecurity due to rising food and fertilizer prices, adding that their need for external financing may increase.
The report stated, “War could affect the global economy in different ways, but all scenarios point to higher prices and slower growth.” It noted that if high energy and food prices become permanent, global inflation could accelerate further, further suppressing economic growth.
The IMF also stated that persistently upward inflation expectations could trigger wage and price increases, making it more difficult to contain the economic shock and increasing the risk of a sharper slowdown.
The institution will release its more comprehensive assessment of the global economy in its World Economic Outlook report, to be published on April 14 in Washington, D.C., during the IMF and World Bank Spring Meetings.
*This is not investment advice.