The International Monetary Fund (IMF) has issued a stark warning about the impact on the global economy of the war started against Iran in the Middle East.
In a blog post published by the agency’s chief economists, they said the conflict that began with the Feb. 28 attack between the United States and Israel has weakened the outlook for many economies that were already in the recovery stage.
According to the IMF, wars cause “asymmetric shocks” globally, causing severe economic disruption and straining financial conditions, particularly in countries directly affected by the conflict. Iran’s closure of the Strait of Hormuz and damage to the region’s infrastructure caused a historic shock to energy markets. According to the International Energy Agency (IEA), these developments constituted one of the biggest disruptions ever in the global oil market.
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The economic impact of war depends on the duration of the conflict, its geographic spread, and the extent of damage to infrastructure and supply chains. The IMF noted that low-income countries in particular face the risk of food insecurity from rising food and fertilizer prices, adding that the need for external financing may increase.
“War can have different effects on the global economy, but all scenarios point to higher prices and slower growth,” the report said. If high energy and food prices become permanent, global inflation could accelerate further and economic growth could be further constrained, he said.
The IMF also said a sustained rise in inflation expectations could cause wages and prices to rise, making economic shocks more difficult to contain and increasing the risk of a sharp economic slowdown.
The agency plans to publish a more comprehensive assessment of the global economy in its World Economic Outlook report, to be published in Washington, DC, on April 14, during the IMF and World Bank’s spring meetings.
*This is not investment advice.
