The International Monetary Fund (IMF) managing director Kristalina Georgieva warned on Monday that the global economy could face a significantly worse outcome if the Middle East conflict extends into 2027, with oil prices potentially reaching around 125 dollars per barrel.
Inflation Risks and De-anchoring Expectations
“We are going to see inflation climbing up, and then inevitably, inflation expectations would start de-anchoring,” Georgieva said at a conference hosted by the Milken Institute in Washington, D.C. She noted that current conditions, including a prolonged conflict, oil prices hovering at or above US$100 per barrel, and mounting inflationary pressures, have already activated the IMF’s “adverse scenario.”
IMF Scenarios for Global Growth and Inflation
In April, the IMF issued three scenarios for global GDP growth in 2026 and 2027: the main “reference forecast,” a middle “adverse scenario,” and a much worse “severe scenario.” Under the adverse scenario, global growth would slow to 2.5 percent in 2026, while inflation would rise to 5.4 percent. The reference scenario, which assumes a short-lived conflict, projects growth of 3.1 percent and inflation of 4.4 percent.
“This scenario, with every day that passes, is further and further behind in the rear-view mirror,” Georgieva said, indicating that the optimistic outlook is becoming less likely. For the severe scenario forecast, global growth would be just two percent, with inflation hitting 5.8 percent.
The IMF chief emphasized that the longer the conflict continues, the more severe the economic consequences will be, urging policymakers to prepare for heightened volatility and potential supply disruptions.
