No global economic slowdown in sight, but risks are high – IMF chief
WASHINGTON: The world economy is weathering the shock of the war in the Middle East with no signs yet of a global slowdown, but risks remain high, International Monetary Fund chief Kristalina Georgieva said on Monday.
Georgieva, who will brief G7 leaders on the global economy at a summit in France this week, welcomed the agreement by the US and Iran on Sunday to end their war and reopen the Strait of Hormuz, but warned in a new blog that an intensification of the conflict and supply disruptions posed a "clear risk to global growth".
The IMF will release an updated global growth forecast on July 8.
In April, it issued three scenarios for global GDP growth in 2026 and 2027, with its middle "adverse scenario" calling for a slowdown to 2.50 per cent in 2026 and headline inflation of 5.40 per cent.
Georgieva last month said that adverse scenario was already in play, but her latest comments suggest the IMF may revert to its reference scenario, which assumed a short-lived Iran war and projected growth of 3.10 per cent in 2026.
The framework US-Iranian deal marks the biggest breakthrough towards resolving a war that began with joint US-Israeli strikes on Iran in late February before escalating into a wider regional conflict that has killed thousands, upended energy markets and stoked recession fears for the global economy.
"More than three months into the war in the Middle East, the global economy appears to be holding up. Commodity prices, inflation and expectations for it, and financial conditions have all been impacted - but not yet in ways that signal a global slowdown," she wrote in a post on the IMF's website.
But the US-Iranian agreement may hinge on an end to hostilities in Lebanon.
It also defers talks on Tehran's nuclear programme, leaving risks to the outlook intact.
"Much depends on the duration and intensity of the energy supply shock," Georgieva wrote, noting that higher energy prices had also driven up fertiliser and food costs.
"The sooner it is resolved, the better."
Oil prices remained 30 per cent above pre-war levels despite easing from earlier peaks and prolonged closure of the Strait of Hormuz and damage to Middle East energy infrastructure left the outlook vulnerable to renewed disruption, Georgieva wrote.
Energy-importing countries led the gains in sovereign bonds across emerging markets on Monday after the deal was announced, while WTI and Brent crude prices each were down more than five per cent on the day.
SOME COUNTRIES HIT HARDER
Georgieva said the war had hit some countries much harder than others, with oil exporters in the Gulf facing steep downward revisions to growth this year and five of eight countries expected to experience outright contractions.
She did not name them.
The US and China are showing strong economic momentum, while higher energy prices weigh on growth in Europe, which is heavily dependent on imported oil and gas.
Artificial intelligence and data-centre investment were also supporting growth in US and Asian technology exporters.
Emerging market economies in Asia have seen petrol prices rise 40 per cent since the war began, with rising government bond yields, currency depreciation and capital outflows amplifying the shock.
African countries that rely heavily on imports face worsening external balances, budget pressures and growing financing needs, Georgieva said, citing fuel shortages, sharp petrol price rises and higher fertiliser and food costs.
Underscoring Africa's exposure, Ethiopia, Malawi and Zambia have faced fuel shortages, while petrol prices in Lesotho, Rwanda and Tanzania have risen by about 50 per cent since the war began.
The IMF said higher energy prices were also lifting fertiliser and food costs, worsening food-security risks.
Georgieva, who had predicted in April that a dozen countries could seek financial assistance of up to US$50 billion from the IMF, said most member countries were in fact asking for policy guidance, not financial support.
The global lender is working with several countries, including The Gambia, Burkina Faso, Ethiopia, Malawi and Bangladesh to adjust existing loan programmes or start new ones, according to Georgieva.