IMF warns of global recession risk amid Middle East conflict

In the worst-case scenario, if the Middle East conflict persists, global growth could fall to about 2%, approaching a recession. On April 14, the International Monetary Fund published the World Economic Outlook, lowering its global growth forecast for this year to 3.1%, down 0.2 percentage points from the January outlook. This is the most optimistic scenario from the IMF, assuming the conflict in the Middle East does not last long. In this scenario, the oil price would average $82 per barrel this year, slightly below current levels. The IMF said that without the conflict, they would raise the forecast to 3.4%, driven by a wave of investment in technology, low interest rates, reduced US import tariffs, and fiscal support policies of many countries. Pierre-Olivier Gourinchas, IMF chief economist, said the conflict is creating risks to the global economy that are far larger than last year’s U.S. tax cuts under President Donald Trump. For the 'adverse' scenario, if the conflict lasts longer, oil would stay around $100 per barrel this year and $75 next year. Global growth this year would be 2.5%. With the 'worst-case' scenario, prolonged conflict, higher oil, growth would fall to 2%. The IMF says this would be near a global recession; growth below that threshold has occurred only four times since 1980, the most recent in 2009 after the financial crisis and in 2020 during the pandemic. Under this scenario, many countries would fall into recession, with oil averaging $110 this year and $125 next year. Such prices would push inflation and wages higher, forcing central banks to tighten policy. IMF economist Gourinchas warned this could cause losses larger than in 2022. Global inflation in 2026 would reach 6% in the worst-case scenario, compared with 4.4% in the optimistic scenario. Large economies such as the United States, euro area, and China have downgraded their growth forecasts for this year due to the Middle East conflict; the reductions are small, around 0.1-0.2 percentage points. Emerging and developing economies face stronger impacts. Growth in the Middle East and Central Asia is cut by up to 2 percentage points to 1.9% this year, due to damaged infrastructure and weaker exports of goods and energy. The only bright spot in this group is India, where growth is raised by 0.1 percentage point to 6.5% for both this year and next, supported by a late-2025 upturn and a recent agreement to reduce tariffs with the United States. The IMF says governments may be compelled to use measures such as fuel subsidies, price caps, or tax cuts to ease energy price shocks; however, the IMF cautions that budget deficits remain high and debt levels are rising.