THE International Monetary Fund is now outlining three possible trajectories for global growth, with the outcome hinging on how the conflict affecting the Strait of Hormuz unfolds.

The outlook, delivered by IMF Chief Economist Pierre-Olivier Gourinchas, assumes a short-lived conflict, with a moderate 19 per cent increase in energy prices in 2026. Under this baseline scenario, global growth falls to 3.15 per cent this year, down from the January forecast, while headline inflation rises to 4.4 per cent. Its adverse scenario assumes further disruption, leading to higher energy prices and tighter financial conditions throughout the year. Growth falls to 2.5 per cent, while inflation rises to 5.4 per cent. Its severe scenario assumes that energy supply disruptions extend into next year, with greater macroeconomic instability. In this case, global growth falls to 2 per cent this year, while inflation exceeds 6 per cent. Currently, the world sits between the reference and adverse scenarios.

“With every day that passes where we don’t have a resolution where the flow of oil and gas is more limited through the Strait of Hormuz, we’re moving away from that scenario,” Gourinchas said. “Every day that passes that we have more disruption in energy, we are drifting closer towards the adverse scenario.”

Global growth had been set to increase, but the war in the Middle East has halted that momentum. The closure of the Strait of Hormuz and serious damage to energy facilities have raised the prospect of a major energy crisis, with prices rising for oil, gas, diesel, jet fuel, fertiliser, aluminium and helium.

The IMF noted that low-income developing countries that are energy importers will be highly exposed, especially those with pre-existing vulnerabilities. While noting that the ability to reduce inflation will not come without the requirement of more unemployment, it suggested actions for policymakers, starting with central banks. In a negative supply shock, he explained that no central bank can influence global energy prices on its own. Provided inflation expectations remain normal, central banks can afford to wait and watch for now. On fiscal policy, with rising debt trajectories, fiscal space is thinner than before, and countries are being urged not to derail from the pursuit of durable growth.

“It should also spur faster adoption of renewable energy, which can strengthen resilience to energy shocks, improve energy security and support the climate transition.”

In comparing the current shock to the 1970s oil price shock, Gourinchas noted an important difference is that the global economy is now less oil-dependent than it was during that period. He also pointed to stronger policy frameworks, noting that central banks have since adopted approaches that allow them to focus more effectively on price stability.