IMF says global economy handled Iran war energy shock better than feared

In short: The IMF’s Kristalina Georgieva said the global economy has absorbed the Iran war’s energy disruption better than many expected, but inflation, government debt pressure, and trade tensions are still risks.

What's going on

Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), said the world economy has been more resilient than feared after the Iran war disrupted energy flows. Reuters quoted her as saying global growth is still “resisting powerful headwinds,” meaning the economy is still moving forward despite strong pressures.

A key worry was disruption around the Strait of Hormuz, a narrow sea route that is important for shipping oil and liquefied natural gas, also called LNG (natural gas cooled into a liquid so it can be shipped). Georgieva said the shock has not triggered the kind of economic collapse many had feared.

Her message is a shift from earlier comments in April. At that time, she warned the war was a “negative supply shock,” which is when the world suddenly has less of an important input, like oil, and prices can rise. Reports also cited her estimate that a prolonged disruption could cut daily oil supply by about 13% and LNG supply by about 20%, which could push up prices and snarl supply chains (the system that moves goods from factories to stores).

What to watch

Georgieva also warned that some countries are facing worsening government finances, which is showing up in rising bond yields (the interest governments must offer to borrow). She said inflation is proving stubborn in places, and trade tensions remain a risk. Even in a best case, she said the world is unlikely to return to the pre-war economic path in a “clean” way.

Source: Financial Times