IMF chief warns of 'much worse outcome' for global economy as Iran conflict drags on

International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned on Monday that the global economy could face a "much worse outcome" if the Middle East conflict drags on into 2027, with oil prices reaching around $125 per barrel.

Speaking at a conference hosted by the Milken Institute in Washington, D.C., Georgieva said prolonged conflict and elevated energy prices would push inflation higher and risk de-anchoring inflation expectations.

Current conditions, including oil prices hovering at or above $100 per barrel, prolonged conflict and mounting inflationary pressures, have likely already triggered the IMF's "adverse scenario," Georgieva said.

In April, the IMF issued three scenarios for global GDP growth in 2026 and 2027, namely the main "reference forecast," a middle "adverse scenario," and a much worse "severe scenario."

Under the adverse scenario, global growth would slow to 2.5 percent in 2026, while inflation would rise to 5.4 percent.

The reference scenario, which assumes a short-lived conflict, projects growth of 3.1 percent and inflation of 4.4 percent.

"This scenario, with every day that passes, is further and further behind in the rear-view mirror," Georgieva said.

For the severe scenario forecast, global growth would be just 2 percent, with inflation hitting 5.8 percent.

Inflationary pressures are already emerging in several economies. Vietnam's consumer price index (CPI) rose 3.99% year-on-year in the first four months of 2026, according to its local media VnEconomy citing the National Statistics Office. In April alone, CPI increased 5.46% from a year earlier.

In Australia, household spending rose 6.3% compared to March 2025 in nominal terms, driven by higher transport costs linked to rising fuel prices amid the Middle East conflict, according to the Australian Bureau of Statistics.

The Reserve Bank of Australia on Tuesday raised its cash rate target by 25 basis points to 4.35%, citing renewed inflationary pressures.

Thailand's Prime Minister Anutin Charnvirakul said the cabinet had approved a draft emergency decree to borrow up to 400 billion baht (about $12.2 billion), aimed at cushioning the impact of the global energy crisis and accelerating the country's transition to clean energy.

(With input from Xinhua)