The ongoing conflict in the Middle East following US-Israeli attacks on Iran could shape the global economy in different ways and will lead to higher prices and slower growth, said the International Monetary Fund (IMF) on Monday.
The IMF said that the war is also dimming the outlook for many economies that had only just shown signs of a sustained recovery from previous crises; and if elevated energy and food prices persist, they will fuel inflation worldwide.
It noted that war raises not only current inflation but also a risk of expectations becoming less firmly anchored.
"A short conflict might send oil and gas prices soaring before markets adjust, while a long one could keep energy expensive and strain countries that rely on imports," the IMF said in a blog post.
ALSO READ: Trump Again Warns Iran: 'Will Blow Up Electric Plants, Oil Wells, Kharg If Hormuz Stays Shut'
It further stated that the situation depends on how long the conflict lasts, how far it spreads, and how much damage it inflicts on infrastructure and supply chains.
"For fuel‑importing economies, the effect is that of a large, sudden tax on income. In Asia's large manufacturing economies, higher fuel and power bills are raising production costs and squeezing people's purchasing power."
The International Monetary Fund also said that the war is reshaping supply chains for non-energy and critical inputs and air‑traffic disruptions around key Gulf hubs impact global tourism, adding another layer of complexity to trade.
"In addition to higher commodity prices, countries, companies, and consumers already face the effects of these supply‑chain complications. With shipments of fertilizer—of which about one-third passes through the Strait of Hormuz—disrupted, concerns about food prices are mounting."
ALSO READ: Dollar, Oil, Yields: Why Gold Is Losing Its Safe-Haven Shine Amid US-Iran War
The Strait of Hormuz, the waterway that connects the Persian Gulf to the open ocean, has been shut down by the Iranian IRGC.
The International Monetary Fund also highlighted that people in low‑income countries are most at risk when prices rise because food accounts for about 36 percent of consumption on average, compared with 20 percent in emerging market economies and 9 percent in advanced economies.
Stating that there could also be shortages or price surges of other materials used in manufacturing, the IMF said, "The Gulf supplies a large share of the world's helium, used in a vast array of products, from semiconductors to medical imaging devices. Indonesia, which provides roughly half of global nickel—a key component in electric‑vehicle batteries—could face a shortage of sulfur needed to process the metal."
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.