00:00The International Monetary Fund has cut its 2026 growth outlook because of the war in Iran.
00:06Even the best-case scenario, with a crisis resolved by mid-year, means we lose 0.2 percentage points in
00:13global growth.
00:14The worst-case scenario, a longer war, ongoing supply disruptions, and oil consistently over $100 a barrel,
00:21could see us in a global recession by 2027.
00:24This news comes as the IMF and World Bank are holding their spring meetings in Washington, D.C.
00:30Let's speak now to Petya Kueva-Brooks, Deputy Director of the IMF's Research Department.
00:36Petya, thank you so much for your time.
00:37I mean, the sad reality is that this war has single-handedly altered the course of what looked like a
00:43promising period of global growth, hasn't it?
00:47Indeed. We were ready to upgrade our forecast from 3.3 back in January to 3.4 this year, and
00:56then the war broke out,
00:58and it certainly cast a shadow on the outlook.
01:02And again, this is not just the impact of the supply shock, the negative supply shock,
01:09but other channels include potentially higher inflation expectations, as well as something that we haven't seen yet,
01:17which is a major repricing of risk in financial markets.
01:21If we focus in on Europe, where are the key vulnerabilities?
01:26Well, we do see a very uneven impact of the war across countries,
01:33but for Europe, I think the impact of the energy shock itself, which would increase inflation,
01:41is essentially going to erode real income and result in lower domestic spending,
01:50is the primary vulnerability.
01:54And of course, the inflation outlook is also significantly changed by this.
02:01Now, we're expecting this to be temporary, but again, depending on the magnitude and the length of the shock,
02:08there are certainly much worse scenarios than our reference case.
02:12Yeah, it's really difficult to predict so much of it,
02:15but we're already seeing governments using things like fuel subsidies, tax breaks, to just try and help people.
02:21What is the IMF's best advice on how nations should manage this crisis?
02:27Well, there are two aspects of it, and again, this is assuming that we are in this reference case,
02:33where we do see the negative impact on output and inflation being higher.
02:39We think that central banks, monetary authorities, at least in the large blocks,
02:45can afford to wait and watch for a little while in order to kind of see the impact of the
02:51shock,
02:51as long as inflation expectations remain anchored.
02:55But then, of course, they should stand ready to act if there is any sign of expectations being destabilized.
03:05And then when it comes to governments, the fiscal authorities,
03:08the buffers, the fiscal buffers that countries are entering this crisis are certainly much thinner than before.
03:15So to the extent that support is provided, it should really be targeted and temporary,
03:21not least because such measures are extremely costly and they're also very hard to remove.
03:30Yeah, time, sort of temporary and very targeted.
03:34I was going to ask what countries should avoid and whether there are any lessons that we can draw
03:38from what COVID did to various economies around the world.
03:43Well, I think one lesson is, again, when support is provided,
03:48that not to be completely across the board generalized,
03:51because, again, in the face of a negative supply shock,
03:55what that could do is really not help with the fight against inflation.
04:01And I think that is something that we've learned from previous such episodes.
04:08Yeah, and also the role of central banks in making sure that inflation doesn't get out of control
04:14if more money is pushed towards consumers to help them cope, for example.
04:19Exactly.
04:20So I think one aspect, and we've seen this in the past years,
04:25is that having independent central banks that are really empowered and ready to act if needed
04:32is a critical part of the resilience in the global economy that we have seen up to now.
04:38So that is certainly going to be an important aspect going forward as well.
04:42How important is regional unity at a time like this?
04:47Well, we are seeing a more fragmented world than years ago.
04:53But at the same time, what we've also observed is that countries have been agile.
04:58They've been forming new trade partnerships and such, and supply chains have been adjusting.
05:05So I think we see that as an encouraging sign, and some of that can be done at the regional
05:11level.
05:11But, again, even going beyond that, kind of plurilateral agreements could certainly play a role going forward as well.
05:21Thank you so much for your time.
05:22That is Petya Kueva-Brooks, Deputy Director of the IMF's Research Department.
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