Volkswacht Bodensee - IMF sees risks to global growth forecast over sustained Iran war

Last month, the multilateral lender's World Economic Outlook predicted global growth would drop to 3.1 percent in 2026 in its "reference" scenario, but warned of a bleaker outlook if the war were to drag on.

In the "adverse" scenario, where oil prices remain higher for longer, inflation expectations become less stable and financial conditions tighten, growth would slow to 2.5 percent, the Fund said at the time.

On Thursday, the Fund's chief spokesperson said the global economy was headed towards this less auspicious situation.

"We are moving into the adverse scenario, but inflation expectations are still reasonably well anchored, and financial conditions still remain accommodative," Julie Kozack told reporters in Washington.

The Fund also has a "severe" scenario, in which growth slows to 2.0 percent and inflation flares to six percent.

An update of the World Economic Outlook is due in July.

The US-Israel war on Iran has engulfed the Middle East in violence, with Tehran's retaliatory action targeting Washington's regional allies and virtually blocking the Strait of Hormuz.

The key waterway normally sees about a fifth of global oil and gas supplies pass through it, and the blockade has seen energy prices skyrocket worldwide.

The IMF was in "active discussions" with member states over their needs, and "many countries are actually asking us for support in the policy area," said Kozack.

During the IMF's spring meetings last month, Managing Director Kristalina Georgieva said as many as 12 countries could require financial assistance from the Fund, with $20-50 billion required in total.

Kozack said that discussions on that financial assistance were continuing, but that the Fund was not yet prepared to disclose which specific countries were involved.

The IMF spokesperson also warned of the risks to food security due to the war, with a third of the world's fertilizer supply also stopped due to the blockade.

"We know from history that when fertilizer prices increase, that it takes about six months or so for this to translate into increased food prices and, in some cases, reductions in yields and food security issues," she said.

R.Flueckiger--VB