The world economy has “weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared,” IMF Managing Director Kristalina Georgieva told journalists in Washington on Tuesday. She did not stop there.
Energy prices have skyrocketed since the United States and Israel launched their war on Iran. Tehran’s retaliation hit U.S. allies and blocked the strait. In July, the IMF cut its global growth projection for the second time this year, pointing to “uncertainty and risks” tied to the war. Its World Economic Outlook update put growth at 3% this year, down from 3.1% in the April forecast.
Uneven damage
Georgieva called the war’s impact “asymmetric.” Some countries were hit harder than others, depending on how much Gulf oil they import and how stable their economies were to begin with.
Inflation, driven up by energy costs, is caught in what she called a “tug of war” with a “positive demand shock from AI,” meaning the surge in demand from heavy spending on the technology. “Risks to the outlook are more balanced than they were around our Spring Meetings (in April), but still tilted to the downside, and uncertainty remains high,” she said.
Winter ahead
With winter coming in the northern hemisphere, energy demand will rise again and could push prices up. “This means the energy shock is not over,” Georgieva said. “A renewed rise in oil prices could fuel inflation, forcing central banks to retain a restrictive policy stance with knock-on implications on debt service costs and on economic activity.”
On AI she was more upbeat. Its benefits are showing up in more countries than the United States, which leads the technology so far. She also admitted there are “significant unknowns,” and said the risk of falling behind is “most profound” in developing countries.
Her bottom line was blunt: there is “no room for complacency.” She urged governments to deal with fiscal imbalances, especially debt, and told central banks to stay “laser-focused” on inflation.
Sources
- Global economy tossed between crises and AI opportunity, says IMF chief
- IMF Chief Issues Stark Economic Warning for 2027
