The International Monetary Fund has warned that rising tensions in the Middle East and instability in energy supplies pose a significant threat to the global economic outlook, particularly if disruptions to the Strait of Hormuz persist.
In its latest World Economic Outlook report, the IMF outlined three scenarios, showing that the longer energy supply disruptions last, the greater the impact on the global economy. Under a moderate scenario, where supply disruptions are short-lived, global energy prices are expected to rise by around 19% this year, with global growth holding at about 3.1% and inflation at 4.4%.
However, in a more adverse scenario involving prolonged disruptions and damage to energy infrastructure, global growth in 2026 could slow to 2.5%, while inflation could rise to 5.4%.
In the worst-case scenario, where supply disruptions extend into the following years, global growth could weaken further to around 2%, with inflation exceeding 6%. The IMF noted that shocks of this scale have only occurred a few times since 1980, including during the global financial crisis and the COVID-19 pandemic, underscoring the severity of the risks.
The IMF’s chief economist cautioned governments against relying too heavily on subsidy measures to address rising living costs, warning that while such policies may be politically attractive, they can increase fiscal burdens and potentially worsen inflationary pressures. The report emphasised that excessive fiscal stimulus during periods of rising inflation could complicate monetary policy efforts.
The IMF concluded that volatility in energy markets is becoming one of the largest sources of uncertainty for the global economy, and urged policymakers to respond cautiously to mitigate the impact of external shocks on economic recovery.