Global Economy Showing Resilience Against Energy Shock from Iran Conflict, IMF Chief Reports

The International Monetary Fund (IMF) managing director stated on Tuesday that the global economy is performing better than anticipated despite energy supply disruptions in the Strait of Hormuz causing widespread uncertainty, though she cautioned about mounting fiscal pressures.

Energy supply disruptions originating from the Middle East have placed fresh strain on a global economy already dealing with stubborn inflation, escalating debt levels, and lingering trade tensions. Traffic disruptions in the waterway—through which approximately 20 per cent of global energy supplies passed before the Iran war started in February—have caused oil price volatility and heightened worries over price pressures.

IMF chief Kristalina Georgieva noted that several elements are assisting the global economy in resisting these disruptions, such as the drawdown of oil and gas reserves, boosts in non-Gulf supply, reductions in demand, and a partial return to coal.

Recent projections from the fund indicate the global economy is expected to expand by 3 per cent this year, marking a minor decrease from its April forecast of 3.1 per cent. Simultaneously, the IMF lowered its 2026 growth forecast for the Middle East to 0.7 per cent, representing a 1.2 percentage point drop compared to April figures.

“Thus far, it has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared,” Ms Georgieva informed reporters at the fund's headquarters ahead of the G20 conference in North Carolina next week.

Part of this stronger-than-expected growth is also attributed to the artificial intelligence boom. The IMF chief mentioned that advantages from this technological surge are now expanding past the US, while the net effect between the tech boom and the energy supply crisis produces asymmetric impacts across various nations.

Global growth is projected to bounce back to 3.4 per cent next year, according to the IMF report released in July.

“What started out as a US phenomenon with AI is now becoming a growth engine for the global economy,” she stated. “We have a tug of war between the negative supply shock from the Middle East and the positive demand shock from AI.”

Ms Georgieva pointed out that climbing bond yields serve as evidence of intensifying fiscal pressures, introducing new anxieties for markets and policymakers. The US Treasury Department announced last week that it plans to at least double the volume of government debt repurchases following long-term yields reaching 20-year highs.

Additional US government data released last week demonstrated that the US national debt has crossed $40 trillion, doubling its total from 2017.

“All countries need to tackle their fiscal problems and formulate and present credible plans to ensure their debt and deficits are on a sustainable path,” she said.