Global economy faces fresh strain as IMF signals slower growth outlook

The global economy is set for a slowdown as a new wave of energy disruptions triggered by conflict in the middle east pushes up inflation, tightens financial conditions and exposes vulnerabilities in both advanced and developing economies, according to Kristalina Georgieva, Managing Director,
International Monetary Fund (IMF).

Speaking ahead of the IMF/ World Bank
2026 spring meetings scheduled to begin in Washington on monday, Georgieva warned that policymakers are entering a critical phase as they grapple with the economic fallout of a major supply shock that is reverberating across global markets.

The IMF chief described the current disruption as “large, global and asymmetric,” noting that global oil flows have declined by about 13 percent, while liquefied natural gas (LNG) supplies have dropped by roughly 20 percent.

The immediate effect has been a surge in energy prices. Brent crude climbed sharply from about $72 per barrel before the conflict to as high as $120, before easing slightly. However, prices remain significantly elevated, forcing many countries to pay a premium for limited supplies.

For energy-importing economies, particularly in sub-Saharan Africa, the development poses serious macroeconomic risks. Higher fuel costs are feeding into transportation, production and food prices, worsening inflation and straining already fragile fiscal positions.

In her curtain raiser speech, Georgieva warned that the impact goes beyond energy markets, and that disruptions to refining operations are causing shortages of key products such as diesel and jet fuel, with ripple effects on transportation, trade and tourism.

In addition, food insecurity is deepening, with an estimated 45 million more people pushed into hunger, bringing the global total to over 360 million.

“This is a shock that touches every part of the global economy,” she said, highlighting the interconnected nature of modern supply chains.

The IMF identified three key channels through which the shock is spreading: rising prices and supply shortages, shifting inflation expectations, and tightening financial conditions.

Higher energy costs are already feeding into consumer prices, increasing inflation across major economies. While long-term inflation expectations remain relatively stable, short-term expectations in advanced economies such as the United States and the euro area have shifted upward, reflecting growing uncertainty.

Financial markets have also begun to adjust. Emerging market economies are facing wider bond spreads, while equity markets have weakened and the U.S. dollar has strengthened. These developments signal tighter global financial conditions, which could further constrain growth, especially in developing economies.

Despite these headwinds, Georgieva noted that the global economy entered this period from a position of relative strength, supported by strong investment in technology and artificial intelligence, as well as previously accommodative financial conditions.

However, she cautioned that the current shock has altered the outlook significantly. The IMF’s upcoming World Economic Outlook is expected to present multiple scenarios, all pointing to slower growth than previously anticipated.

“Even in the most optimistic scenario, we are looking at a downgrade,” she said, citing infrastructure damage, supply disruptions and declining confidence as key factors.

Critical energy infrastructure has already been affected. Qatar’s Ras Laffan industrial city, one of the world’s largest LNG production hubs supplying much of the Asia-Pacific region, has been largely shut down following damage from the conflict. Full restoration could take between three and five years, underscoring the potential for prolonged supply constraints.

Shipping disruptions are also compounding the problem. Traffic through key routes such as the Red Sea has yet to recover fully from earlier disruptions, while uncertainty remains over future transit through strategic chokepoints.

Georgieva stressed that the policy response will be crucial in determining how the crisis unfolds. She urged countries to avoid protectionist measures such as export restrictions and broad price controls, warning that such actions could exacerbate global imbalances.

On monetary policy, central banks are expected to maintain a cautious stance, with a readiness to tighten if inflationary pressures intensify. Fiscal authorities, she said, should prioritise targeted and temporary support for vulnerable households and businesses, rather than broad-based subsidies.

A major constraint, however, is limited fiscal space, as public debt levels have risen significantly over the past two decades, leaving many countries with less room to respond to new shocks.
Rising interest rates are further increasing the cost of debt servicing, adding to fiscal pressures.

The IMF also called for vigilance in the financial sector, noting that prolonged periods of easy financial conditions have created potential risks, particularly among non-bank financial institutions.

Georgieva emphasised that strong economic fundamentals and sound policy frameworks remain the best defence against external shocks.
“There are forces countries cannot control,” she said, “but they do have control over their policies and institutions.”