Key insights
- The IMF warns that a prolonged Middle East conflict extending to 2027, potentially driving oil prices to $125/barrel, could trigger higher inflation and derail global growth. This scenario increases downside risks for US equities due to potential inflationary pressures and tighter financial conditions, although long-term inflation expectations are currently anchored.
WASHINGTON, May 4 (Reuters) - The head of International Monetary Fund on Monday warned that inflation was already picking up and the global economy could face a "much worse outcome" if the war in the Middle East drags into 2027 and oil prices hit around $125 per barrel.
IMF Managing Director Kristalina Georgieva said the continuation of the war meant that the global lender’s scenario calling for a minor slowdown of global growth and a minor increase in prices was no longer possible.
As a result, the IMF’s "adverse scenario" was already in effect, she said. Long-term inflation expectations remained anchored and financial conditions were not tightening, but that could change if the war continued, she told a conference hosted by the Milken Institute.