IMF warns of possible collapse of global economy: time to tighten belts

In its annual survey of the world economy, published twice a year, the IMF notes that global economic growth over the past six months has weathered the Middle East conflict better than expected.

The review said the diversion of oil supplies away from the Strait of Hormuz and the release of strategic energy reserves helped contain the impact of the U.S.-Iran war on oil prices.

However, the document warns that emergency stocks are now depleted, and high levels of debt and budget deficits in many countries could deprive governments of the ability to protect consumers from any future price spike.

“Without strengthening supply capacity and replenishing policy reserves, the global economy may soon experience the limits of resilience,” the report said. “Inventories in energy markets are shrinking, and additional geopolitical turmoil could still quickly manifest itself in the form of prices and supply disruptions.”.

The International Energy Agency announced the largest ever emergency release of oil inventories to the market in March this year and promised to speed up the process after a meeting of oil ministers last month. But recently it became known that the US strategic oil reserve, indicating the vulnerability of the system, fell to the lowest level since 1982.

Last week, Donald Trump agreed with Vladimir Putin to temporarily lift sanctions on imports of Russian diesel fuel to the United States in a bid to lower gas station prices.

The report on the global economy was released on Tuesday in Bangkok, where the IMF and the World Bank are holding their annual meetings this week, with finance ministers and central bankers scheduled to attend. Ahead of the meeting, IMF Managing Director Kristalina Georgieva urged governments to tighten their belts amid rising global debt levels. “We can’t put off taking the necessary policy measures – you have the tools, you have the wisdom to use them,” she said.

In its report, the IMF slightly raised its global growth forecast for this year, to 3.1 percent, against 3 percent in the last update in July. The forecast for next year has not changed and is 3.4%.

The IMF also warned that continued high oil prices and rising interest rates mean that economic growth is likely to “slow down” in 2027 “as higher energy prices and long-term interest rates put pressure on consumption and investment.”.

The International Monetary Fund notes that “risks to the global economy are shifted downward.” In particular, the threat of a “protracted stalemate or further escalation in the Middle East”, which will lead to higher prices for energy and food.

“Further disruptions to energy infrastructure, cyberattacks or extreme weather events could exacerbate these impacts,” the IMF said.

The persistence of high oil prices means that the surge in inflation is expected to last longer than previously forecast. Global inflation is expected to be 4.7% this year – at the same level as forecast in July – and to fall to 4.1% in 2027 – down from 4% in the last update.

In addition to new upheavals in energy markets, the IMF pointed to the continuing risk of a market collapse associated with artificial intelligence for the global economy.