After enduring a pandemic and rising inflation, the global economy just hit another wall: war in the Middle East. The International Monetary Fund on Tuesday cut its growth forecast, warning that the war in Iran and blocked oil shipments through the Strait of Hormuz are threatening to slow output, push up prices, and edge the world closer to recession. "The global outlook has abruptly darkened," wrote IMF chief economist Pierre-Olivier Gourinchas, who said the conflict derailed what had been "steady growth," per the New York Times. Even in the IMF's relatively optimistic scenario, global growth is now seen slipping to 3.1% this year, down from a prewar outlook of 3.4%.
In a worst-case scenario of prolonged energy disruption, global growth could fall to 2% and inflation reach 6%. "That will feel for most people around the world as if it's a recession time," Gourinchas notes, per the BBC. Energy markets sit at the center of the risk. Oil is above $100 a barrel, natural gas is up more than 80%, and fertilizer costs are climbing, with the IMF warning that those increases will feed into prices of everything from steel to cement and could force central banks to keep interest rates higher for longer. Even if war were to end quickly, the IMF predicts a 21.4% jump in oil prices this year, per the Times. Poorer countries and Gulf exporters face the heaviest strain, while Russia, buoyed by higher oil prices and eased sanctions on some exports, is one of the few economies seeing its outlook improve.
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