International Monetary Fund Managing Director Kristalina Georgieva warned that the US strikes on Iran could potentially have broader impacts beyond energy channels, as global uncertainty escalates, Report informs via Bloomberg.
“We are looking at this as another source of uncertainty in what has been a highly uncertain environment,” said Georgieva in an interview with Bloomberg TV on Monday. The biggest shock so far has been seen in energy prices, which the IMF is watching closely, but “there could be secondary and tertiary impacts. Let’s say there is more turbulence that goes into hitting growth prospects in large economies — then you have a trigger impact of downward revisions in prospects for global growth.”
Global benchmark Brent surged as much as 5.7% to $81.40 a barrel early in Asia Monday, before paring much of that gain in heavy trading.
The IMF already downgraded its global growth prospects for this year in April, when it warned that the US-led world trade “reboot” would slow growth. Georgieva said the first two quarters this year have shown that trend holding, and while the world will likely avoid a recession there’s also higher uncertainty, which has a tendency to hold down growth prospects.
More immediately, Georgieva said the IMF is looking particularly at how the unfolding conflict will impact oil and gas risk premia. In the oil market, options volumes are spiking, and the futures curve has shifted to reflect tensions about tighter near-term supplies.
“Let’s see how events will develop,” Georgieva said, adding that she’s watching whether there may be disruptions to energy supply delivery routes or spillovers to other countries. “I pray no.”
As for the US economy itself, the IMF chief said she sees disinflation continuing, although the country is not in a state where the Federal Reserve feels comfortable cutting rates right now.
“What we expect toward the end of the year is possibly for the Fed to apply judgment that the time may have come for some adjustment in interest rates downwards,” said Georgieva. She pointed to strength in the US labor market and solid pay gains helping consumers.
At the same time she warned that the more volatility there is, the worse the situation is for businesses.
“When there is uncertainty, what happens? Investors don’t invest, consumers don’t consume, and that holds growth prospects down,” she said.