- IMF lowers global growth forecast to 3.1 per cent from 3.3 per cent.
- Severe scenario could see growth fall below 2 per cent, near recession levels.
- Oil shock and supply disruption driving inflation and economic uncertainty.
The International Monetary Fund has lowered its global growth forecast, warning that the ongoing conflict in the Middle East and the resulting oil shock could push the world economy closer to a downturn if disruptions continue.
In its latest World Economic Outlook, the IMF now expects global GDP to grow by 3.1 per cent this year, down from its earlier estimate of 3.3 per cent. The revision reflects rising energy prices and uncertainty following the US-Israeli attack on Iran that began on February 28.
The downgrade comes at a time when the global economy had been showing signs of steady momentum. According to the IMF, growth had been supported by investment in technology, easing trade tensions and favourable financial conditions before the conflict escalated.
Energy shock puts growth at risk
The central concern is the impact of rising oil prices and supply disruption.
The conflict has effectively disrupted movement through the Strait of Hormuz, a key global energy route, pushing oil prices higher. In a severe scenario outlined by the IMF, oil prices could average around £86 ($110) per barrel this year.
Under such conditions, global growth could fall below 2 per cent, a level the IMF associates with near-recession conditions. This has only happened a handful of times since 1980, including during the 2008 financial crisis and the Covid pandemic.
Pierre-Olivier Gourinchas, the IMF’s chief economist, reportedly said that continued disruption in energy markets increases the likelihood of moving towards this adverse scenario.
Inflation is also expected to rise as a result. The IMF projects global inflation at 4.4 per cent this year, up from 4.1 per cent previously expected, with energy and food prices driving the increase.
Uneven impact across regions
The economic impact is expected to vary significantly across regions.
Emerging markets are likely to be hit harder, with growth revised down to 3.9 per cent from 4.2 per cent. In contrast, the effect on developed economies is expected to be more moderate.
Among major economies, Europe appears particularly exposed. Both the UK and Germany are now expected to grow by just 0.8 per cent this year, reflecting weaker momentum and higher sensitivity to energy costs.
The US economy is projected to grow 2.3 per cent, only slightly below earlier estimates, supported in part by its position as a net energy exporter.
China’s growth has been revised down slightly to 4.4 per cent, with government stimulus expected to offset some of the external shock.
The Middle East and Central Asia are expected to see a sharper slowdown, with growth dropping to 1.9 per cent, while countries such as Bahrain, Iraq, Kuwait and Qatar are projected to contract. Iran’s economy is expected to shrink by 6.1 per cent this year.
A fragile outlook shaped by uncertainty
The IMF has outlined multiple scenarios depending on how the conflict evolves.
In a more moderate scenario, global growth could slow to 2.5 per cent, with inflation rising to 5.4 per cent. In a more severe case, inflation could reach 6.1 per cent next year, alongside weaker growth.
The key variable remains the duration and intensity of the conflict, particularly its impact on energy production and supply routes.
As finance ministers and central bankers gather for global meetings in Washington, the focus is likely to remain on how to manage the economic fallout of rising energy costs and geopolitical uncertainty.
For now, the outlook suggests that what began as a regional conflict is increasingly shaping global economic conditions, with growth, inflation and stability all tied to how the situation unfolds.
