The Iran war is darkening the outlook for the world economy, regardless of whether a fragile ceasefire holds, the International Monetary Fund’s managing director said in Washington on Thursday, ahead of next week’s IMF-World Bank spring meetings.
Kristalina Georgieva said the fund will downgrade its forecast for global economic growth next week, adding that “even our most hopeful scenario involves a growth downgrade.” She said the IMF had been poised to upgrade global growth before the war began on Feb. 28.
Georgieva told reporters that the IMF’s earlier optimism reflected how global growth had proven resilient despite President Donald Trump’s decision the year before to impose sweeping taxes on imports from most countries. She said that in January the 191-country IMF upgraded its global growth outlook to 3.3% and expected to do so again when its new forecasts were to be released next Tuesday.
She said the war changed that trajectory by raising energy prices, damaging oil refineries and tanker terminals, disrupting fertilizer shipments that farmers rely on, and damaging confidence among businesses and consumers.
Georgieva also said that on Tuesday, the United States and Iran announced they had reached a ceasefire after Trump warned that otherwise “a whole civilization will die tonight.” She said the existence of a ceasefire did not remove the IMF’s concerns about the near-term pace of activity.
“Growth will be slower — even if the new peace is durable,” Georgieva said Thursday, framing the downgrade as a response to economic damage already set in motion by the conflict and its impact on energy and logistics.
She said Sub-Saharan Africa and small island countries would be among the most vulnerable to the energy shock, and she said many governments have only limited ability to support their economies with additional spending or tax cuts because their debts are already high.
Georgieva pointed to steps some governments have taken to limit the damage, including urging or requiring people to work from home, encouraging more use of public transportation, and limiting travel by public officials.
She urged policymakers to avoid making matters worse with “go-it-alone” approaches such as limiting exports or imposing price controls, saying, “Don’t pour gasoline on the fire.”