Reuters: The head of the International Monetary Fund on Monday warned that inflation was already picking up and the global economy could face a “much worse outcome” if the war in the West Asia drags into 2027 and oil prices hit around $125 per barrel.
IMF Managing Director Kristalina Georgieva said the continuation of the war meant that the global lender’s “reference scenario” assuming a short-lived conflict – which forecast a minor growth slowdown to 3.1 percent and a minor increase in prices to 4.4 percent – was no longer possible.
“This scenario, with every day that passes, is further and further behind in the rear-view mirror,” Georgieva said.
The continuation of the war, a forecast of an oil price around or above $100 per barrel, and rising inflationary pressures meant the IMF’s “adverse scenario” was already in effect, she said.
Long-term inflation expectations remained anchored and financial conditions were not tightening, but that could change if the war continued, she told a conference hosted by the Milken Institute.
“Now, if this continues into 2027 and we have oil prices of $125 more or less, then we have to expect a much worse outcome,” she said. “Then we are going to see inflation climbing up and then inevitably, inflation expectations would start de-anchoring.”
The IMF last month issued three scenarios for the global GDP growth path in 2026 and 2027 amid massive uncertainty over the war in the West Asia – the main “reference forecast,” a middle “adverse scenario” and the much worse “severe scenario.”
The adverse scenario forecast global growth slowing to 2.5 percent in 2026 and headline inflation of 5.4 percent. The severe scenario forecast growth of just 2 percent and headline inflation of 5.8 percent.
Chevron Chairman and CEO Mike Wirth, speaking on the same panel, said that physical shortages in oil supply would begin appearing around the world because of the closure of the Strait of Hormuz, through which 20 percent of global crude supply passed before the war.
