File Photo: The International Monetary Fund building in Washington, D.C. AFP
The IMF said risks to the outlook are now firmly on the downside, with the potential for a prolonged or escalating conflict to further undermine trade, fuel commodity price volatility, and tighten financial conditions.
Trade and supply chains under strain
The report highlighted that the war is already affecting global trade through disrupted supply chains, volatile commodity prices, and currency pressures, warning that these effects could intensify if the conflict persists.
Food security risks are also rising, particularly as disruptions to fertilizer markets ahead of planting seasons could trigger further increases in food prices, compounding global inflationary pressures.
Rising geopolitical risks
The IMF report warned that a further escalation of the conflict, or the emergence of domestic political tensions in affected economies, could amplify economic damage.
Commodity-importing countries are seen as particularly vulnerable, as rising food and energy prices erode real incomes, widen external imbalances, and increase the risk of balance of payments pressures and social unrest.
Emerging markets with weaker policy frameworks and limited fiscal buffers could face capital flow reversals and sharp asset price corrections, amid heightened global risk aversion and tighter cross-border financial conditions.
Energy crisis and global spillovers
The report reiterated that a more severe escalation could trigger a major global energy crisis, sharply reducing global output.
More broadly, rising geopolitical risks tend to have sizeable macroeconomic effects. The fund estimates that a one-standard-deviation increase in geopolitical risk can reduce real GDP by about 0.8 percent within a year, mainly due to weaker consumption and investment.
At the same time, such shocks are associated with higher inflation, largely through rising food and energy prices, while exchange rate depreciation, estimated at around 1.8 percent after one year, can further intensify price pressures.
Structural and medium-term risks
Beyond the immediate conflict, the report highlighted additional medium-term risks, including potential misallocation of resources linked to excessive optimism about artificial intelligence, as well as persistent fiscal and financial vulnerabilities.
While upside risks remain, such as stronger-than-expected momentum from AI-driven investment or continued accommodative financial conditions, the report cautioned that these are likely to be outweighed by escalating geopolitical and economic uncertainties.
Overall, the IMF stressed that the global outlook remains highly fragile, with the trajectory of trade, inflation, and growth increasingly dependent on the evolution of the conflict and broader geopolitical tensions.
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