IMF named 3 scenarios of the consequences of war. In the worst case, the world will be on the verge of recession

The International Monetary Fund presented three scenarios for global economic growth amid high uncertainty due to the conflict in the Middle East.

The baseline, the most optimistic version assumes that the U.S. war with Iran will be short-lived, the average oil price will be $82 per barrel this year, and global GDP will grow by 3.1%.By comparison, in January, the IMF expected the global economy to expand by 3.3% and admitted that before the Iranian crisis even considered raising the forecast to 3.9% - against the backdrop of sustainable dynamics supported by an investment boom in the technology sector, easing trade restrictions, fiscal support and favorable financial conditions.

In the fund's negative scenario - with a more protracted conflict - oil prices are held at around $100 a barrel this year and roll back to $75 in 2027. Global growth would then slow to 2.5%, the MIA calculated.

In the most severe development of events, assuming further escalation and a sharp rise in energy prices, serious shocks in financial markets and tightening of financial conditions are possible. In this case, global GDP growth this year may decline to 2%, the IMF predicts. It notes that in this case the economy will be close to a global recession - according to the fund's definition, it occurs when growth is below 2%. Such a recession has occurred only four times since 1980, including during the 2009 crisis and the 2020 pandemic, the report says.

Presenting the scenarios, IMF Chief Economist Pierre-Olivier Gourinchas said that the world economy is now developing along a trajectory between the "baseline" and "negative" scenarios. But, he said, as disruptions in energy prices and supply chains intensify, the world is shifting more toward the negative scenario, Reuters quoted him as saying.

In the fund's baseline forecast, the main slowdown will fall on developing countries: the expected GDP growth in them has been reduced from 4.2% to 3.9%. Expectations for developed countries have not changed and amount to 1.8%.

Among the largest economies, the UK and Germany are the worst off: both will grow by just 0.8% this year instead of 1.1%, the IMF says. In the US, it now predicts GDP expansion of 1.8% instead of 1.9%.

In the Middle East and Central Asia, growth will slow to 1.9%, with the IMF expecting a contraction in Bahrain, Iraq, Kuwait and Qatar. Iran's own economy will contract by 6.1% instead of the previously expected 1.1% growth, the report said.

Conflict in the Middle East could still cause the kind of turbulence that markets have so far avoided, the IMF warned in a blog post. While stock exchanges have shown "some resilience" since the war began, this "should not be taken literally," the fund said.

"Rather, it reflects cycles of escalation and de-escalation, structural improvements in the financial system, and the absence of a decisive negative turn that could trigger a prolonged decline in markets," the text said.

The IMF indicated that investors may not have "fully factored in prices for more unfavorable scenarios," stressing that the conflict "remains highly unpredictable." A "protracted conflict that causes shocks through channels that are not yet fully evident" cannot be ruled out.

This could trigger a chain reaction in a global economy already under pressure from high debt levels, as well as in highly leveraged and low-transparency markets such as private credit, the IMF wrote.

This article was AI-translated and verified by a human editor