Oil shock to drag growth, raise inflation: IMF

Washington: A global oil shock linked to the Middle East conflict is set to hit growth and stoke inflation across energy-importing economies, the International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned on Thursday.

In her curtain raiser speech ahead of the Annual Spring Meeting of the IMF, Georgieva said the disruption has cut the world’s daily oil flow by about 13 per cent and liquefied natural gas (LNG) supply by 20 per cent, triggering a broad-based rise in energy prices and supply chain stress.

“As always, a negative supply shock pushes prices up,” the IMF Chief said, noting that Brent crude jumped from $72 per barrel before the conflict to a peak of $120.

Prices have since eased but remain well above pre-conflict levels, with many countries paying high premiums for access to fuel.

The IMF Chief described the shock as global but uneven in impact.

Countries dependent on imported energy are expected to bear the brunt, while exporters less affected by disruptions may see limited damage.

The fallout is already visible across sectors.

Fuel shortages and refinery disruptions have hit diesel and jet fuel supplies, affecting transportation, trade and tourism.

Food insecurity is also rising.

She warned that “another 45 million people or more” could face hunger due to supply disruptions, pushing the global total beyond 360 million.

Georgieva said the shock is working through three main channels — higher prices and shortages, rising inflation expectations, and tighter financial conditions.

“Higher prices for key inputs feed into many consumer goods, lifting inflation,” she noted, cautioning that expectations could “ignite a costly inflation process” if not contained.

Financial markets have reacted with widening emerging market bond spreads, adjustments in equity prices and a stronger dollar, although some easing has since been observed.

“Despite earlier momentum driven by strong technology investment and supportive financial conditions, the IMF now expects global growth to weaken,” the IMF Chief said.

“Even our most hopeful scenario involves a growth downgrade,” Georgieva said, citing infrastructure damage, supply disruptions and loss of confidence.

Energy infrastructure damage remains a concern.

Qatar’s Ras Laffan complex — which produces 93 per cent of the Gulf’s LNG — has been shut and could take three to five years to return to full capacity.

The IMF Head noted that more than 80 per cent of countries are net oil importers, making them vulnerable to sustained price shocks, particularly those with limited fiscal space.

Georgieva urged governments to avoid policy moves such as export controls or price caps that could worsen global conditions.

“Don’t pour gasoline on the fire,” she said.

Central banks should remain focused on price stability and be ready to act if inflation expectations become unanchored, while fiscal support should be “targeted and temporary,” she added.

The IMF expects demand for balance-of-payments support to rise to between $20 billion and $50 billion in the near term, depending on how the conflict evolves.

IANS