Iran war
escalation could trigger global recession, IMF warns
Growth
forecasts cut for US and global economy, while UK suffers sharpest downgrade in
G7
Richard
Partington in Washington
Tue 14
Apr 2026 14.34 BST
A further
escalation in the Iran war could trigger a global recession, spiralling
inflation and a sharp backlash in financial markets, the International Monetary
Fund has warned.
Against
an increasingly volatile backdrop, the Washington-based fund said the economic
damage from the Middle East conflict was steadily rising as it cut its growth
forecasts for 2026 based on the impact from the war so far.
In its
half-yearly update, the IMF said the UK would suffer the sharpest growth
downgrade and joint highest inflation rate in the G7 this year, even if the
fallout from soaring energy costs can be contained by the middle of 2026.
However,
under a worst-case “severe scenario”, involving a drawn-out war and
persistently higher energy prices, it said the world would face “a close call
for a global recession” for only the fifth time since 1980.
Oil
prices jumped back above $100 (£74) a barrel on Monday amid choppy trading in
global markets after crunch weekend talks between the US and Iran ended in
stalemate and as a US blockade of the strait of Hormuz began. On Tuesday, Brent
crude eased 0.9% to $98.5 a barrel on hopes of further peace talks.
As
finance ministers and central bank heads from around the globe gather in
Washington for the spring meetings of the IMF and the World Bank, the fund said
war had darkened the outlook for global growth.
While
warning that countries worldwide would face slower growth and higher inflation,
the IMF said net energy importers and developing nations would face the biggest
hit.
Highlighting
how the fallout is hitting US households as Donald Trump issues conflicting
statements about Washington’s aims in the Middle East, the IMF lowered its
forecast for US growth in 2026 by 0.1 percentage points, to 2.3%.
However,
it reserved its sharpest downgrade for any G7 nation for the UK, cutting its
forecast by 0.5 percentage points to 0.8%, while warning that inflation would
climb to almost 4%.
It comes
as Rachel Reeves prepares to use the IMF meetings to urge countries around the
world to stage a coordinated response to the economic fallout from the war.
The UK
chancellor, who is due to arrive in Washington late on Tuesday, is also
expected to outline the UK government’s approach to providing targeted and
temporary support for businesses while in the US.
In
response to the IMF report, Reeves said: “The war in Iran is not our war, but
it will come at a cost to the UK. These are not costs I wanted, but they are
costs we will have to respond to.
“I have
vowed that my economic approach to this crisis will be both responsive to a
changing world and responsible in the national interest, keeping inflation and
interest rates in check to protect households and businesses.”
With the
pressure on the global economy mounting, the IMF set out three possible
scenarios for the war in its World Economic Outlook (WEO) – in which even a
short-lived conflict would dent growth and stoke inflation relative to its
previous forecasts made last autumn.
Pierre-Olivier
Gourinchas, the IMF chief economist, said: “Despite the recent news of a
temporary ceasefire, some damage is already done, and the downside risks remain
elevated.”
In a
central “reference forecast” – based on the assumption that disruption to the
world economy from the war fades by mid-2026 – global growth would fall from
3.4% last year to 3.1% in 2026, a downgrade of 0.1 percentage points from the
fund’s previous WEO report published last autumn.
Reflecting
the existing hit to living standards from the rise in energy prices, headline
inflation would also rise to 4.4%.
Should
the conflict become more protracted, however, the IMF warned a longer shutdown
of the strait of Hormuz and further damage to drilling and refining facilities
would disrupt the global economy more deeply and for longer.
Setting
out an “adverse scenario” to reflect this risk – in which the global oil price
remains at $100 this year, before falling back to $75 in 2027 – growth would
fall to 2.5% this year and inflation would rise to 5.4%.
Under a
“severe scenario – with a lengthier, intensive war keeping the oil price above
$110 into 2027 – global growth would collapse to about 2% this year, a
threshold widely seen as equivalent to a worldwide recession. The IMF estimates
global growth has only fallen below this rate four times since 1980, most
recently amid the Covid pandemic in 2020 and after the 2008 financial crisis.
In a blow
to households, inflation would also exceed 6% – forcing central banks worldwide
to drive up interest rates to prevent the shock from allowing fast-rising
consumer prices becoming entrenched.
With the
threat of an escalating war in the Middle East, the IMF said the best way to
limit the economy damage was to bring an end to the conflict. Beyond that, it
called on central banks to remain vigilant and urged governments considering
using emergency financial support to focus on temporary and targeted measures
because most countries had unsustainably high debt levels.
“Untargeted
measures – price caps, subsidies, and similar interventions – are popular. But
they are frequently poorly designed and costly,” Gourinchas said.
Sem comentários:
Enviar um comentário