The conflict in the Middle East is expected to weigh on the global economy and push around 45 million people into food insecurity, with the risk of further escalation, warned IMF Managing Director Kristalina Georgieva on Thursday.
Kristalina Georgieva made these remarks during her traditional opening speech that marks the start of the spring meetings of the International Monetary Fund (IMF) and the World Bank (WB), scheduled in Washington from Tuesday to Friday.
The IMF is set to release an updated version of its World Economic Outlook (WEO) report on Tuesday, which is expected to take into account the impact of the conflict on the global economy.
While “we were supposed to move towards an upward revision of global growth,” the war now means that “even our best-case scenario includes a downward revision of growth,” emphasized Ms. Georgieva.
However, given the uncertainty, “it will include a series of scenarios ranging from a relatively quick normalization” of the geopolitical situation “to one where oil and gas prices remain high much longer and where repercussions set in.”
The IMF chief added that the institution anticipates additional support demand from member countries “ranging somewhere between $20 billion and $50 billion, at the lower limit if the ceasefire holds.”
But “it would have been worse without strong policies from most emerging economies (…) and we have the necessary resources to cope with this shock,” reassured Ms. Georgieva.
The sharp rise in energy prices and disruptions in oil, liquefied natural gas (LNG), and fertilizer supplies risk causing “food insecurity for at least 45 million people,” bringing the total “of those suffering from hunger to over 360 million,” warned the IMF Managing Director.
“Even in the best-case scenario, there will be no clean return to the situation before hostilities began.
– “Wait and assess” –
At the same time, this new energy shock could “undermine the anchoring” of inflation expectations by markets and “trigger a new cycle of costly inflation” for the global economies.
“The damage to infrastructure, supply disruptions, loss of confidence, and other effects” are the causes; “growth will be slower, even if the new peace is lasting.”
However, the effect is not felt in the same way in all regions of the world, impacting more strongly oil-importing and low-income countries with more limited budget margins.
“Let’s think of the Pacific island nations, at the end of the supply chain, who do not know if they will receive the energy they need because of these major disruptions,” added the IMF Managing Director.
In a report released on Wednesday, the World Bank noted that Middle Eastern countries had paid “an immediate and serious economic cost” for the war.
The region is expected to see its growth lowered by 0.6 points, compared to pre-war forecasts, to 1.8% in 2026, the WB added.
Facing such a situation, governments “can assist in various ways,” assured Ms. Georgieva, but must avoid actions like export or price controls.
Immediately “there is an interest in waiting and assessing” how the geopolitical situation will evolve, but if inflation expectations change, “central banks must act decisively with rate hikes.”
As for fiscal policies, they can incorporate “very calibrated demand support” but “only if states have the necessary fiscal margins,” emphasized the IMF chief.
