IMF warns global resilience is reaching limits as energy stocks deplete

The International Monetary Fund has issued a stark warning that the global economy may soon reach the limits of its resilience, citing depleted emergency oil reserves and overstretched government budgets. In its latest World Economic Outlook, the fund noted that while global growth has withstood recent Middle East conflicts better than initially feared, the capacity to absorb further shocks is diminishing. The report highlights that strategic energy stocks have been significantly drawn down to manage price impacts from the US-Iran war, leaving little buffer against future geopolitical disruptions or supply chain interruptions.

The IMF stated that the rerouting of oil supplies away from the Strait of Hormuz and the release of strategic energy stocks helped contain oil price spikes in the past six months. However, emergency inventories are now dwindling, and high debt levels combined with fiscal deficits in many nations limit the ability of governments to protect consumers from potential price jumps. The fund urged policymakers to move beyond merely coping with current conditions to actively rebuilding economic buffers. It emphasised that without shoring up supply capacity and replenishing policy reserves, additional shocks could transmit rapidly through prices and supply disruptions, threatening broader financial stability.

In Bangkok, where the IMF and World Bank are holding their annual meetings, IMF economic counsellor Silvana Tenreyro described the global economy as resilient but noted that this resilience is reaching its limits. She called on leaders to use their tools wisely to address rising global debt levels. Meanwhile, IMF managing director Kristalina Georgieva urged governments to tighten their fiscal belts, warning against delaying necessary policy action. The report was published ahead of the arrival of finance ministers and central bankers, including UK Chancellor John Healey, who is expected to attend the gathering later this week.

The fund has marginally revised up its forecast for global economic growth this year to 3.1 per cent, compared with 3 per cent in its July update. Next year’s global growth forecast remains unchanged at 3.4 per cent. For the United States, growth is projected to remain at 2.3 per cent this year, with the forecast for 2027 revised up to the same level from 2.2 per cent. The IMF predicted GDP growth of 1.3 per cent for the UK this year, an increase of 0.3 percentage points from its most recent update. However, it cautioned that prolonged high oil prices and rising interest rates could cause growth to edge down in 2027, cutting its UK forecast for next year modestly to 1.2 per cent from 1.3 per cent.

The report warns that risks to the global economy are skewed to the downside, particularly due to the threat of a prolonged stalemate or further escalation in the Middle East. Such developments could lead to higher energy and food prices, while further disruptions to energy infrastructure, cyber-attacks, or extreme weather events could amplify these effects. The persistence of elevated oil prices means the spike in inflation is expected to last longer than previously forecast. Global inflation is projected to be 4.7 per cent this year and to decline to 4.1 per cent in 2027. The IMF advised central banks to avoid overreacting to short-term inflation jumps but to remain agile in responding if inflation becomes entrenched. Additionally, the fund pointed to the continuing risk of an AI-driven market crash as a threat to global financial stability.