Energy disruptions related to the Middle East conflict risk a recession-like slowdown and elevated price pressures.
The International Monetary Fund (IMF) on Tuesday cut its growth outlook and warned the global economy could edge toward recession if the Iran war intensifies, as energy disruptions ripple through inflation, financial markets, and trade.
In its latest World Economic Outlook and accompanying analysis, the IMF said the Middle East conflict—now disrupting a key share of global oil and gas flows—sent previously positive growth momentum to an unexpected halt and introduced unusually high uncertainty for policymakers and investors.
“Downside risks dominate,” IMF analysts wrote in the executive summary. “Geopolitical tensions could worsen even more than they already have—turning the situation into the largest energy crisis in modern times—or domestic political strains could erupt.”
The fund outlined three scenarios—reference, adverse, and severe—depending on how long the war lasts and how deeply energy markets are affected. Under the most severe case, global growth could fall to around 2 percent, a level historically associated with recession-like conditions that has occurred only four times since the 1980s.
“This shock is large. … It is global. Everybody uses energy. Everybody feels the pinch,” IMF Managing Director Kristalina Georgieva said in a recent interview with CBS, noting that up to 13 percent of global oil and 20 percent of gas flows have been disrupted.
“People are hurting.”
US Growth Holding Up
The United States is expected to weather the shock better than most advanced economies, with its growth forecast at 2.3 percent this year, a mere tenth of a percentage point below earlier projections.
The IMF said U.S. activity continues to be supported by tax cuts, earlier interest rate easing, and strong investment in artificial intelligence infrastructure. These factors are partially offsetting higher energy costs and global uncertainty.
“In the United States, acceleration in productivity growth since the pandemic is an additional factor that could explain the positive growth surprises,” the fund said. “Growth in output per hour worked has shown strength both relative to that in other economies … and relative to its own history.”
Growth is expected to remain relatively robust into 2027 at about 2.1 percent, reflecting continued momentum in technology-driven sectors.
By Tom Ozimek
