Key facts
- The IMF warned the Middle East war is the biggest risk to the global economy.
- The IMF expects global growth of 3.4% next year.
- The IMF noted that countries involved in AI hardware development have a better outlook.
- The IMF forecast Saudi Arabia's GDP to contract by 3.3% this year.
- The IMF projected GDP contractions of over 15% for Iraq, Kuwait, and Qatar this year.
The International Monetary Fund (IMF) has warned that the ongoing conflict in the Middle East presents the most significant threat to the global economy, potentially hindering economic growth. Despite the global economy's resilience, the institution cautioned that this resilience is nearing its limits, necessitating a transition from merely coping to actively rebuilding. This rebuilding effort should focus on restoring fiscal space and enhancing supply-side resilience, according to IMF chief economist Silvana Tenreyro.
The war in the Middle East has exacerbated inflation by driving up energy commodity prices, with these effects rippling through the broader economy. However, an IMF official noted that government interventions, such as utilizing oil reserves and diversifying energy suppliers, have helped mitigate the risks of severe economic damage. These measures, combined with demand destruction resulting from higher prices, have been effective.
The IMF also highlighted that countries actively engaged in artificial intelligence (AI) development are positioned for a better economic outlook. This includes nations involved in AI hardware, such as South Korea, Malaysia, Thailand, and Mexico, as well as the U.S. and European economies within the EU.
Conversely, nations most susceptible to the energy crisis are facing considerable challenges. The IMF has significantly downgraded its forecast for Saudi Arabia, now projecting a GDP contraction of 3.3% for the current year, a stark contrast to its earlier prediction of 1.7% growth. Other Gulf states, including Iran, Iraq, Kuwait, the UAE, and Qatar, are also expected to experience GDP contractions this year, with Iraq, Kuwait, and Qatar anticipated to suffer particularly severe downturns exceeding 15%.