IMF Warns Middle East Tensions Could Disrupt Global Economy

(MENAFN) IMF First Deputy Managing Director Daniel Katz cautioned Tuesday that the escalating conflict in the Middle East poses serious risks to the global economy, particularly regarding inflation and growth, though he stressed it is still too early to gauge the full effects.

Speaking at a finance conference in Washington, Katz noted that before the recent Gulf tensions, the global economy was projected to continue growing steadily. He said the current crisis introduces new uncertainties, with the economic consequences largely depending on the conflict’s duration and intensity.

Katz stated, "The conflict could be very impactful on the global economy across a range of metrics, whether it’s inflation, growth and so on, but it was still early to have a firm conviction."

He explained that the IMF will assess the direct regional effects, including damage to infrastructure and disruptions to tourism, air travel, manufacturing, and energy facilities. A prolonged disruption in energy markets, particularly if the Strait of Hormuz were closed, could have severe consequences, especially for countries heavily dependent on oil exports.

The magnitude of the impact, Katz added, will vary according to each country’s exposure and fiscal capacity. He also highlighted recent rises in oil and natural gas prices, along with moderate interest rate increases, indicating that markets are anticipating higher energy costs driving inflation.

"If the rise in energy prices proves temporary and inflation expectations remain well anchored, central banks may look through the shock. However, a more persistent energy shock that destabilizes inflation expectations could trigger a monetary policy response," Katz noted, according to reports.

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