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IMF warns global economy ‘could soon test the limits of resilience’
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The International Monetary Fund has warned that the global economy "could soon test the limits of resilience" as emergency oil stocks run dangerously low and government budgets become overstretched across major economies. In its twice-yearly World Economic Outlook, released Tuesday in Bangkok during the annual IMF and World Bank meetings, the Fund cautioned that policymakers must act now to rebuild buffers before the next shock hits.
Over the past six months, the global economy has withstood the Middle East conflict better than feared. The IMF attributed this relative stability to the rerouting of oil supplies away from the Strait of Hormuz and the release of strategic energy reserves, which together helped contain the impact on oil prices stemming from the US-Iran war. The International Energy Agency announced the largest-ever emergency releases of oil stocks in March and pledged to accelerate them after a meeting of oil ministers last month.
However, the IMF warned that emergency stocks are now depleted and high debt levels in many countries could leave governments with little capacity to shield consumers from future price spikes. "Inventories in energy markets are dwindling and additional geopolitical shocks could still transmit rapidly through prices and supply disruptions," the report stated. The vulnerability of the system was underscored by reports that the US strategic petroleum reserve recently fell to its lowest level since 1982.
The Fund marginally revised up its forecast for global growth this year to 3.1 percent, from 3 percent in July, while next year's forecast remains unchanged at 3.4 percent. US growth is projected at 2.3 percent this year, while the UK forecast was raised to 1.3 percent for this year but cut modestly to 1.2 percent for next year. Global inflation is expected to remain at 4.7 percent this year before easing to 4.1 percent by 2027, revised up from a previous 4 percent forecast.
Launching the report, IMF economic counsellor Silvana Tenreyro said the global economy has been resilient, but that resilience is reaching its limits, urging policymakers to "move from just coping, to rebuilding." Managing director Kristalina Georgieva echoed this sentiment ahead of the gathering, calling on governments to tighten their belts amid rising global debt levels. "We cannot keep delaying necessary policy action – you have the tools, now have the wisdom to use them," Georgieva said.
Looking ahead, the IMF cautioned that "risks are skewed to the downside," pointing particularly to the threat of a prolonged stalemate or further escalation in the Middle East, which would drive up energy and food prices. Additional disruptions to energy infrastructure, cyber-attacks, or extreme weather events could amplify these effects. With US President Donald Trump continuing to signal potential further attacks on Iran, the IMF urged central banks and governments to act decisively before conditions deteriorate further.
