International Monetary Fund warns that with emergency oil inventories falling to low levels and government budgets becoming stretched, the global economy "may soon test the limits of its resilience."
In its twice-yearly World Economic Outlook, the IMF said global growth has weathered the Middle East conflict over the past six months and performed better than previously feared.
The IMF said rerouting oil supplies around the Strait of Hormuz and releasing strategic energy stockpiles helped contain the impact of the US-Iran war on oil prices.
However, the IMF warned that emergency inventories are now depleted, and high debt levels and deficits in many countries may leave governments with little capacity to shield consumers from any future price spikes.
The IMF said: "Without strengthening supply capacity and replenishing policy buffers, the global economy may soon test the limits of its resilience."
"Energy market inventories are shrinking, and additional geopolitical shocks could still transmit rapidly through prices and supply disruptions."
The International Energy Agency announced its largest-ever emergency oil stock release in March this year and pledged to accelerate releases after last month's oil ministers' meeting.
But in a sign of the system's fragility, the US Strategic Petroleum Reserve has recently reportedly fallen to its lowest level since 1982.
Last week, Donald Trump and Vladimir Putin reached an agreement to temporarily lift sanctions on US imports of Russian diesel in an attempt to push down pump prices, but analysts said this would have little "substantive" effect.
The World Economic Report was released on Tuesday in Bangkok, where the IMF and World Bank will hold their annual meetings this week, with finance ministers and central bank governors expected to attend.
Ahead of the meetings, IMF Managing Director Kristalina Georgieva urged governments to tighten spending amid rising global debt levels.
She said: "We cannot continue to delay necessary policy actions — you have the tools, now have the wisdom to use them."
In the report, the IMF slightly raised its global growth forecast for this year to 3.1%, compared with 3% in its last update in July. Next year's forecast remained unchanged at 3.4%.
The US growth forecast for this year was unchanged at 2.3%, while the 2027 forecast was raised to the same 2.3% pace, compared with 2.2% in the last update.
The IMF forecast UK GDP growth of 1.3% this year, 0.3 percentage points higher than its most recent update in July — good news for Chancellor John Healey, who is expected to arrive in Bangkok later this week.
However, the IMF also warned that prolonged high oil prices and rising interest rates mean growth in 2027 could "dip slightly" "as higher energy prices and long-term interest rates weigh on consumption and investment."
The IMF slightly lowered its UK growth forecast for next year to 1.2% from 1.3%.
However, the IMF warned that global economic "risks are tilted to the downside."
It specifically cited the threat of "a prolonged stalemate or further escalation in the Middle East," which would drive up energy and food prices.
The IMF added: "Further disruptions to energy infrastructure, cyberattacks or extreme weather events could amplify these effects."
Trump continues to insist he may launch a new round of strikes on Iran in the coming weeks, while there are few signs of a negotiated peace agreement.
Sustained high oil prices mean the inflation spike is expected to last longer than previously forecast.
Global inflation is expected to be 4.7% this year, the same as the July forecast, and is projected to fall to 4.1% in 2027, higher than 4% in the last update.
The IMF urged global central banks not to overreact to short-term inflation jumps, but to be ready to respond quickly if inflation appears to be becoming entrenched.
The IMF said: "In a changing economic landscape, agility is essential."
Beyond the new turmoil in energy markets, the IMF also noted that an AI-driven market crash poses a persistent risk to the global economy.
Comments