IMF Chief Warns of Lasting Economic Damage from Iran Conflict Despite Potential Peace Deal

By Richard Partington

*Published: 2026-04-09*

The managing director of the International Monetary Fund, Kristalina Georgieva, stated that the ongoing conflict involving Iran between U.S. and Israeli forces and Iran will cause permanent damage to the global economy, even if a durable peace agreement is reached in the Middle East.

Georgieva delivered these remarks in a speech on Wednesday, as a conditional ceasefire in the six-week-old conflict faced uncertainty due to disagreements between Washington and Tehran over its terms. The conflict began on February 28, 2026, when U.S. and Israeli forces conducted strikes in Iran, including the assassination of Supreme Leader Ali Khamenei. These actions followed heightened tensions over Iran's nuclear program and its government response to anti-regime protests in 2025 and 2026.

Georgieva attributed anticipated slower global growth in 2026 to "scarring effects" from the conflict to date. She noted that, absent the conflict, the IMF would have raised its global growth forecast for the year. "But now, even our most hopeful scenario involves a growth downgrade. Even in a best case, there will be no neat and clean return to the status quo," she said.

The conditional ceasefire, announced late Tuesday, appeared at risk amid the disagreements. Global oil prices rose on Thursday amid volatility in financial markets, reflecting concerns over disruptions to energy supplies via the Strait of Hormuz—a key route for world oil trade. Iran has restricted access to the strait in response to the strikes.

Georgieva's speech served as an introduction to the IMF's annual spring meetings in Washington the following week. She highlighted heightened uncertainty regarding the extent of the global slowdown linked to the conflict.

According to Georgieva, all scenarios in the IMF's forthcoming World Economic Outlook report—due Tuesday—project a permanent reduction in living standards worldwide. Last autumn, the IMF had projected global growth of 3.1% for 2026, down slightly from 3.2% in 2025. That forecast cited an AI-driven investment surge as supporting economic resilience amid tariff measures implemented by U.S. President Donald Trump.

Georgieva described the world economy as entering the conflict with "considerable momentum," driven by technology investments and favorable financial market conditions. She listed infrastructure damage, supply chain interruptions, diminished business confidence, and other war-related effects as sources of enduring economic losses, irrespective of a peace deal.

She pointed to uncertainties in Gulf shipping routes and the timeline for restoring output at damaged oil and gas facilities in the region. "The fact is, we don’t truly know what the future holds for transits through the Strait of Hormuz or, for that matter, for the recovery of regional air traffic," Georgieva said. "What we do know is that growth will be slower—even if the new peace is durable."

Georgieva indicated that growth downgrades would vary by country, with net oil-importing nations, lower-income countries, and small island states facing steeper impacts. She advised governments worldwide to avoid unilateral measures such as export restrictions or price controls. "That can further upset global conditions: don’t pour gasoline on the fire," she said.

With many countries facing high debt levels and elevated borrowing costs at the conflict's outset, Georgieva recommended targeted, temporary fiscal support for vulnerable households. She cautioned against broad tax cuts or energy subsidies, which could fuel inflation and strain public finances. Central banks, she added, should maintain current interest rates but prepare to address inflationary pressures if needed. "All countries must deploy their limited fiscal resources responsibly, and most must move decisively to rebuild space after this shock. I cannot emphasise this enough," she said.

These remarks coincided with comments from Bank of England Governor Andrew Bailey, who described the conflict as a "very big shock" to the global economy. Bailey, who also chairs the Financial Stability Board—an international group monitoring financial stability—spoke in recent testimony to European lawmakers. He noted ongoing risks tied to volatility in the Middle East.

"We’ve obviously had a very big shock in the last month or so, with the conflict breaking out in the Middle East, that has prompted, obviously, much greater market volatility," Bailey said. "I mean, we all have to get up in the morning and find out what’s gone on overnight. At least we got up yesterday and found the world was still with us, but it obviously is very volatile. Yesterday was a good day in point to illustrate that."

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