IMF chief warns of 'much worse outcome' for global economy as Iran war drags on

International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned that the global economy would face a "much worse outcome" if the Middle East war drags on into 2027, with oil prices hitting around 125 dollars per barrel.

"We are going to see inflation climbing up, and then inevitably, inflation expectations would start de-anchoring," she said at a conference hosted by the Milken Institute in Washington, D.C., on Monday (local time).

She noted that current conditions, including a prolonged conflict, oil prices hovering at or above 100 US dollars per barrel, and mounting inflationary pressures, have already activated the IMF's "adverse scenario," reports Xinhua news agency.

In April, the IMF issued three scenarios for global GDP growth in 2026 and 2027, namely 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% in 2026, while inflation would rise to 5.4%.

The reference scenario, which assumes a short-lived conflict, projects growth of 3.1% and inflation of 4.4%.

"This scenario, with every day that passes, is further and further behind in the rear-view mirror," Georgieva said.

For the severe scenario forecast, global growth would be just 2%, with inflation hitting 5.8%.

Meanwhile, global crude oil prices declined almost 3% on Monday after US President Donald Trump said Washington would take steps to help clear vessels stranded in the Strait of Hormuz, though the lack of a breakthrough in US-Iran talks kept prices above the $100-mark. 

International benchmark Brent crude slipped 66 cents or 0.61% to $107.51 per barrel, while US West Texas Intermediate (WTI) fell $2.83 or 2.77% to $99.11 a barrel.

(This story was taken from syndicated feed and was only edited for style by Gujarat Samachar Digital team)