LIVE: International Monetary Fund releases World Economic Outlook

Reference scenario assumes short-lived conflict

Global growth falls to 3.1% with inflation at 4.4%, assuming a 19% rise in energy prices and normalization in the second half of the year.

Adverse scenario projects 2.5% growth

Further disruption leads to higher energy prices and tighter financial conditions, pushing inflation to 5.4% this year.

Severe scenario risks 2% growth and 6%+ inflation

Energy supply disruptions extending into next year with greater macro instability would cause growth to stall and inflation to exceed 6%.

Central banks should wait but remain vigilant

Provided inflation expectations remain anchored, central banks can afford to wait and watch, but must communicate readiness to act decisively against wage-price spirals.

Avoid broad price caps and subsidies

With thinner fiscal space, countries should deploy targeted temporary measures for the most vulnerable rather than distortionary broad subsidies that stimulate demand.

Prepare to pivot in severe conditions

If financial conditions tighten sharply and global activity deteriorates, monetary and fiscal policy should pivot to support the economy and safeguard financial stability.

Current shock comparable to 1974 oil crisis

The oil shortfall is comparable to the 1970s shock in magnitude, though the global economy is now less oil-dependent and central banks have stronger inflation-fighting credibility.

2022 lessons reveal new challenges

Unlike 2022 when a steep supply curve allowed disinflation with limited output losses, the supply curve is now flatter, making disinflation more costly in terms of unemployment.

Uneven impact across regions

Low-income energy importers and Gulf countries face severe exposure, while China sees modest growth revision to 4.4% despite domestic consumption remaining weak.

Accelerate renewable energy adoption

The conflict should spur faster transition to renewables to strengthen resilience against energy shocks, improve security, and support climate goals.

Manage AI-driven labor transitions

While artificial intelligence promises large productivity gains, policymakers should promote adoption while easing the bumpy transition as some jobs disappear and new ones emerge.

Strengthen cooperation in multipolar world

Despite fraying alliances and trade restrictions, countries are forming new trade agreements beyond traditional lines, suggesting a multipolar world need not be a fragmented one.