The International Monetary Fund (IMF) warns in its latest outlook that “the global economy would come close to experiencing a recession” if the disruptions to the oil and energy markets extend into next year.
The IMF forecasts a short lived Iran War will result in global growth of 3.1 percent this year and headline inflation of 4.1 percent.
Under the worst case scenario it predicts global growth of two percent and headline inflation near six percent.
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The Fund’s Chief Economist, Pierre-Olivier Gourinchas, says “the closure of the Strait of Hormuz and serious damage to critical production facilities … could cause an energy crisis on an unprecedented scale”.
“The duration and scale of the conflict, and the time it will take for energy production and transit to normalise after the end of hostilities, will determine the ultimate size of the shock to the global economy,” he says.
Treasurer heads to Washington DC
Australia’s Treasurer, Jim Chalmers, is heading to Washington D.C. to talk with G20 Finance Ministers’ and will also attend the Central Bank Governors’ Meeting.
Dr Chalmers will only be on the ground for less than 24 hours and says his focus will be on adding pressure on the Trump Administration to end the war, securing fuel supplies, strengthening supply chains, calibrating budget forecasts and promoting Australia as an investment destination.
“These engagements come at a dangerous time for the global economy,” Chalmers says.
“I’ll continue Australia’s calls for an enduring ceasefire, an end to the conflict in the Middle East and the proper reopening of the Strait of Hormuz because that’s what the global economy desperately needs.”
IMF cautions against spending splurge
The IMF is also cautioning governments against going on spending sprees in the name of cost of living relief, as it could add to the inflation and interest rates problem.
The IMF admits that fiscal measures are “popular” but says any relief should be “targeted and temporary”.
“Avoiding fiscal stimulus at a time of rising inflation is another critical component so as not to complicate the task of central banks,” Chief Economist Pierre-Olivier Gourinchas says.
“Preserving price signals is key, as they transmit a critical market signal of scarcity and of the need to reduce demand and expand supply.”
The Albanese Government has already started handing out cost-of-living relief through its decision to cut the fuel excise in half for three months, which is costing the budget $2.5 billion in lost revenue.
“The costs and consequences of the conflict in the Middle East will be felt for some time, in Australia and around the world,” Treasurer Jim Chalmers said.
“Australians didn’t choose the circumstances of this war but they’re paying a hefty price for it at the bowser and beyond.
“We’re taking decisive action to address this global fuel challenge, by halving the fuel excise to help with the cost of living, holding petrol companies to account, working to secure more fuel and get it to where it’s needed in our economy, and engaging internationally.”
Coalition hits back
The Opposition says the Albanese Government had left the economy in a “weakened state” before the Iran War started.
Australia is about to hit $1 trillion of federal government debt.
The official cash rate is sitting at 4.10 percent, after two rises already in 2026.
The nation’s headline inflation has also surged to 3.7 percent in the latest figures from February.
The Shadow Transport Minister, Bridget McKenzie, says “the Government needs to get its spending profile under control.”
“The big test for the Treasurer in this upcoming budget is will he, for the first time in four-years, make the tough decisions that our whole economy needs if we are going to save our country from the very worst of this global crisis.”