Kristalina Georgieva, head of the International Monetary Fund, warns that the ongoing Iran war will leave a lasting scar on the global economy, even if a lasting peace deal emerges in the Middle East. She delivered these remarks in a speech amid threats to an unraveling ceasefire in the conflict.
Slower Growth Ahead
Georgieva highlighted the war’s “scarring effects,” which have already slowed global growth projections for 2026 below initial estimates. Without the conflict that erupted six weeks ago, the IMF would have raised its outlook. “Even our most hopeful scenario involves a growth downgrade,” she stated. “In the best case, there will be no neat return to the status quo.”
The fragile ceasefire, announced late Tuesday, hangs in the balance as Washington and Tehran clash over its terms. Global oil prices surged Thursday amid market volatility, fueled by concerns over disruptions in the Strait of Hormuz, a vital artery for world energy supplies.
Permanent Damage to Living Standards
This speech serves as a prelude to the IMF’s annual spring meetings in Washington next week. Georgieva noted heightened uncertainty about the war-induced slowdown’s severity. All scenarios in the upcoming World Economic Outlook report, due Tuesday, predict enduring declines in living standards.
Last fall, the IMF projected 3.1% global growth for 2026, down slightly from 3.2% in 2025, buoyed by an AI investment surge and financial market support despite tariff tensions under Donald Trump. The economy entered the war with strong momentum from tech investments.
Yet infrastructure destruction, supply chain breaks, eroded confidence, and other war-related scars will impose permanent losses, regardless of peace prospects. Uncertainty persists over Gulf shipping routes and recovery timelines for damaged oil and gas facilities. “We don’t truly know the future for transits through the Strait of Hormuz or regional air traffic recovery,” Georgieva said. “Growth will slow—even if peace holds.”
Disproportionate Impacts and Policy Guidance
Oil-importing nations, developing economies, and small island states face the steepest declines. Georgieva advised against unilateral measures like export curbs or price controls. “They can worsen global conditions—don’t pour gasoline on the fire,” she cautioned.
With high debt and borrowing costs prevalent, governments should prioritize targeted, short-term aid for vulnerable households. Broad tax cuts or energy subsidies risk inflation and fiscal strain. Central banks must hold interest rates steady but prepare to combat price pressures. “All countries must use fiscal resources wisely and rebuild buffers decisively after this shock,” she emphasized.
Global Volatility Echoed by Central Bankers
Andrew Bailey, Bank of England governor and Financial Stability Board chair, described the war as a “very big shock” to the global economy. Speaking to the EU parliament’s economic committee, he pointed to surging market volatility. “We’ve had a major jolt from the Middle East conflict, prompting wild swings. We wake up daily to check overnight developments—yesterday underscored the instability.”
