The global economy was expected to grow at a healthy pace before the US-Iran war erupted, but the conflict now has the potential to affect growth and inflation across the world significantly, said IMF Deputy Managing Director Katz.
Speaking at the Milken Conference, Katz said the war could be “very impactful” across a range of global metrics, depending on how events unfold on the ground.
He said it is still far too early to have a high degree of conviction about the overall economic impact, as much will depend on security developments and how long the conflict lasts.
The IMF will closely assess physical damage to infrastructure, including production facilities and energy assets, as well as disruptions to tourism and air travel, sectors that are highly sensitive to geopolitical shocks.
As per Reuters, the IMF had earlier forecast solid global GDP growth of 3.3% in 2026, supported by AI-led investment and productivity gains, before the outbreak of hostilities. However, Reuters reported that the Fund is now studying the war’s direct economic impact, including rising energy prices, trade disruptions and increased financial market volatility.
Katz said central banks are likely to look through a short-term spike in energy prices. But if energy prices rise persistently and begin to destabilise inflation expectations, monetary authorities could respond more firmly. He warned that if prolonged uncertainty continues, central banks would likely remain cautious in their policy stance.
He also reiterated that the IMF believes the US needs to reduce its current account deficit, highlighting broader global imbalances at a time of heightened geopolitical risk.
It is pertinent to note that oil prices have already surged sharply amid fears of supply disruptions, underlining the risk that a prolonged energy shock could spill over into broader inflation and growth pressures worldwide.
Oil markets have witnessed a sharp spike in crude oil prices, with Brent crude surging approximately 8-10% in recent sessions to around $85-90 per barrel. Iran’s IRGC has effectively blockaded the Strait of Hormuz since late February 2026, warning ships against passage and halting around 20% of global oil/LNG flows
