IMF to downgrade global growth outlook over Middle East conflict

The International Monetary Fund (IMF) says it will downgrade its global growth forecast next week, citing the ongoing US-Israel war with Iran as a major risk to the global economy.

Kristalina Georgieva, managing director of the IMF, disclosed this on Thursday ahead of the IMF-World Bank Spring Meetings. She noted that even the most optimistic projections now point to slower global economic expansion.

“Had it not been for this shock, we would have been upgrading global growth,” Georgieva said. “But now, even our most hopeful scenario involves a growth downgrade.”

The IMF had earlier raised its global growth projection to 3.3 percent in January and was considering another increase before the conflict, which began on February 28, disrupted the outlook.

According to the institution, the war has driven up oil and gas prices, damaged energy infrastructure, and disrupted fertiliser supplies, developments that have heightened inflation risks and weakened both business and consumer confidence.

Georgieva warned that central banks must remain cautious to prevent inflation from spiralling.

“The central bank cannot afford to let inflation spiral out of control,” she said.

Her remarks come ahead of the US Federal Reserve’s policy meeting later this month, amid growing pressure from Donald Trump to cut interest rates.

She also urged countries to strengthen their economic buffers, noting that rising defence spending is placing additional strain on public finances.

“Get your house in order,” she advised.

The IMF said it still has about $1 trillion in lending capacity but is seeking approval from the US Congress to increase its quota resources by 50 percent to improve its ability to respond to future economic shocks.

In a related report, the IMF noted that wars often have long-term economic consequences.

“On average, output in countries where fighting occurs drops by about 3 percent at the onset and continues to decline for years, reaching cumulative losses of roughly 7 percent within five years,” the report stated.

However, the fund added that countries involved in foreign conflicts may avoid significant domestic economic losses if there is no physical destruction within their territories.