The International Monetory Fund (IMF) has warned that the global economy is at risk of recession if the US-Israel war with Iran continues and high energy prices persist.
Energy prices have soared since the war with Iran began more than six weeks ago after the key Strait of Hormuz shipping route effectively closed and peace talks between the US and Iran failed.
IMF, in its World Economic Outlook report, said in a worst-case scenario, global growth could fall below two per cent in 2026 if oil and food prices spike and remain high this year and next.
According to the IMF, “this would mean a close call for a global recession which has happened only four times since 1980,” the most recent being during the Covid-19 pandemic.
“Once again, the global economy is threatened with being thrown off course – this time by the outbreak of war in the Middle East at the end of February 2026,” IMF said.
The world’s monetory watchdog said the most severe conditions that could lead to a worldwide slowdown would include oil prices reaching an average of $110 per barrel this year and hitting $125 in 2027.
Based on these assumptions, the IMF said inflation could reach as much as 6% next year.
The BBC reports Pierre-Olivier Gourinchas, chief economist at the IMF, as saying that the “Global recession is sort of a concept that is a bit fuzzy when we’re looking at global numbers.
“And so, yes, 2% is a situation that will feel for most people around the world as if it’s a recession time. Unemployment will be high. For some countries, food prices, food insecurity might rise.”
Oil has risen close to $120 during the Iran conflict but has since fallen back, and on Tuesday, a barrel of crude cost $98.85.
