Far be it for me to gloat, but my suggestion<\/a> in January that \u201csteady\u201d was not a word to describe the global economy unless you were desperately trying to make the madness of Donald Trump seem normal has aged quite well.<\/p>\n If the graph does not display click here<\/a><\/p>\n As ever, the IMF remains unwilling to name Donald Trump. While it is more than happy to note the \u201clingering effects of the persistent rise in energy prices since Russia\u2019s invasion of Ukraine\u201d, the IMF only talks about \u201cthe Middle East conflict\u201d as though it sprang out of nowhere.<\/p>\n And as ever, the IMF refuses to acknowledge the changed reality of the world.<\/p>\n It remains stuck in a situation where the biggest concern about inflation is wages.<\/p>\n It notes sensibly<\/a> that \u201cthe standard policy response to a surge in energy prices is for central banks to look through\u201d \u2013 ie not raise interest rates because interest rates do not affect world oil and gas prices.<\/p>\n However, it quickly adds that this should only happen \u201cas long as inflation expectations remain well anchored\u201d. Should inflation expectations rise, the IMF warns of (you guessed it) \u201cwage and price spirals\u201d.<\/p>\n Oddly the IMF makes no mention of profit and price spirals. This is despite in 2023 its own research noted<\/a> \u201crising corporate profits account for almost half the increase in Europe\u2019s inflation over the past two years as companies increased prices by more than spiking costs of imported energy\u201d.<\/p>\n You might think the most recent energy price spike may be of use for looking at the current energy price spike.<\/p>\n But no, the IMF remains fixated on wages and the need to raise interest rates to keep those inflation expectations down.<\/p>\n So even while the deputy governor of the RBA, Andrew Hauser, noted in a talk in New York<\/a> that \u201clong-term inflation expectations have not picked up\u201d, speculators still assume the RBA will raise the cash rate in May. Alas I think they\u2019re right.<\/p>\n If the graph does not display click here<\/a><\/p>\n The three scenarios are a bit like Starbuck coffee sizes where even the smallest sounds huge. Here even the best case is terrible.<\/p>\n The current \u201cbad scenario\u201d is where Trump, Israel and Iran come to an agreement pretty soon and so global growth only slows \u201cmoderately\u201d.<\/p>\n Then there is the \u201cadverse scenario\u201d where things carry on for the rest of the year and oil stays around US$100 per barrel.<\/p>\n Finally, the \u201csevere scenario\u201d is where nothing is resolved, oil prices reach $125 in 2027, gas prices increase by 200% over the same period, and food prices increase by 5% in 2026 and 10% in 2027.<\/p>\n Even under the current bad scenario, the global economy is expected to slow compared to what the IMF forecast in January. But under the adverse and severe scenarios the global economy grows by just 2.0% this year and 2.2% next year.<\/p>\n If the graph does not display click here<\/a><\/p>\n For context over the past 40 years, the global economy has grown slower than 2.2% only three times \u2013 1992 (global recession), 2009 (the GFC) and 2020 (Covid).<\/p>\n The IMF doesn\u2019t forecast what will happen to each country under the different scenarios, but even under the current scenario Australia\u2019s economy is expected to grower slower than expected in October last year:<\/p>\n If the graph does not display click here<\/a><\/p>\n The IMF has downgraded Australia\u2019s growth by more than most. Even under the most optimistic scenario growth is 0.5% worse than was forecast last October \u2013 a bigger downgrade than all G7 nations.<\/p>\n If the graph does not display click here<\/a><\/p>\n Thanks Donald.<\/p>\n The IMF is not forecasting a recession \u2013 inflation and unemployment (under the best scenario) do not rise greatly:<\/p>\n If the graph does not display click here<\/a><\/p>\n But the IMF warns against governments doing popular things like \u201cenergy caps or subsidies, designed to protect households and firms\u201d. It worries, like the RBA does, that such policies will increase inflation because we\u2019ll all suddenly have so much more money to spend.<\/p>\n This is not a concern for the government\u2019s fuel excise halving, because petrol prices remain well above what they were before the US and Israel began bombing Iran:<\/p>\n If the graph does not display click here<\/a><\/p>\n Should the war continue, the government will be under pressure to deliver relief to households but to also not blow the budget doing so.<\/p>\n Fortunately, the IMF also points the way.<\/p>\n It notes that \u201cgas prices are expected to be affected more than oil prices because of the technical complexity of restarting production and the comparatively lower level of reserves to fall back on\u201d.<\/p>\n![\"IMF](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/04\/4891.jpg\")
IMF says strait of Hormuz closure raises prospect of \u2018major energy crisis\u2019 \u2013 video<\/p>\n