Emergency oil stockpiles are running dry and government finances are stretched to their limits, leaving the global economy exposed to the next major shock, the International Monetary Fund has warned.
In its twice-yearly World Economic Outlook, the IMF said the world economy had absorbed the fallout from conflict in the Middle East with less damage than had been feared over the past six months.
It credited the redirection of oil flows away from the strait of Hormuz, together with releases from strategic energy reserves, with limiting the damage done to crude prices by the US-Iran war.
But the fund cautioned that those emergency supplies have now been used up, while heavy debt burdens and deficits in many economies leave governments without much room to shield consumers from a future surge in prices.
“Without shoring up supply capacity and replenishing policy buffers, the global economy could soon test the limits of resilience,” the IMF said. “Inventories in energy markets are dwindling and additional geopolitical shocks could still transmit rapidly through prices and supply disruptions.”
The International Energy Agency announced the largest-ever emergency releases of oil stocks on to the market in March this year, and pledged to accelerate the process following a meeting of oil ministers last month.
The system’s fragility was underlined by recent reports that the US strategic petroleum reserve has fallen to its lowest level since 1982.
Last week Donald Trump agreed a deal with Vladimir Putin to temporarily lift sanctions on US imports of Russian diesel, in an attempt to bring down prices at the pumps — a move analysts said would have little “meaningful” effect.
The World Economic Report was published on Tuesday in Bangkok, where the IMF and World Bank are holding their annual meetings this week, with finance ministers and central bankers scheduled to attend.
Ahead of the gathering, IMF managing director Kristalina Georgieva urged governments to tighten their belts amid rising global debt levels. “We cannot keep delaying necessary policy action – you have the tools, now have the wisdom to use them,” she said.
The report revised up the IMF’s forecast for global economic growth this year marginally, to 3.1% — against 3% in its last update in July. Its forecast for next year is unchanged, at 3.4%.
US growth remains unchanged at 2.3% this year and was revised up to the same pace, 2.3%, for 2027 — from 2.2% at the last update.
For the UK, the IMF predicted GDP growth of 1.3% this year — up 0.3 percentage points from its July update — in welcome news for the chancellor, John Healey, who is set to arrive in Bangkok later this week.
The fund also warned that prolonged high oil prices and rising interest rates meant growth was likely to “edge down” in 2027, “as higher energy prices and long-term interest rates weigh on consumption and investment”. It cut its UK growth forecast for next year modestly to 1.2%, from 1.3%.
The IMF said “risks are skewed to the downside” for the global economy, pointing in particular to the threat of “a prolonged stalemate or further escalation in the Middle East”, which would push energy and food prices higher.
“Further disruptions to energy infrastructure, cyber-attacks, or extreme weather events could amplify these effects,” the IMF added.
Trump has continued to insist he could launch another wave of attacks on Iran in the coming weeks, with little sign of a peace agreement being negotiated.
With oil prices staying elevated, the spike in inflation is now expected to last longer than previously forecast.
Global inflation is expected to be 4.7% this year — the same level as forecast in July — and to decline to 4.1% in 2027, up from 4% in the last update.
The IMF urged the world’s central banks not to overreact to short-term jumps in inflation, but to be ready to respond quickly if it appears to be becoming entrenched. “With economic conditions in flux, agility is at a premium,” it said.
As well as fresh turmoil in energy markets, the IMF pointed to the continuing risk to the global economy of an AI-driven market crash.
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