IMF cuts world economic growth prediction

Investment Analysis Clubs Macro Economic Trends and Risks
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IMF cuts growth outlook, warns of potential global recession if Iran war worsens

By David Lawder, Reuters, 4/14/26

WASHINGTON, April 14 (Reuters) - The International Monetary Fund cut its growth outlook on Tuesday due to Iran war-driven energy price spikes and supply disruptions and warned that the global economy would teeter on the brink of recession if the conflict worsens and oil stays above $100 per barrel through 2027…

But the war has created a far bigger risk to the global economy than President Donald Trump’s initial wave of steep tariffs did a year ago, IMF chief economist Pierre-Olivier Gourinchas told Reuters in an interview. …

The IMF said that governments will be tempted to implement fiscal measures to ease the pain of higher energy prices, including price caps, fuel subsidies or tax cuts, but cautioned against these urges amid still-elevated budget deficits and rising public debt… [end quote]

This is a detailed article considering many countries with several alternate scenarios.

Fiscal measures can lead to higher inflation which can hurt consumers directly and also cause central banks to raise interest rates.

Wendy

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Wendy,

I went through every scenario I could.

Without the Straight open, the world will be short 10 million barrels a day or more. The best case I could come up with is 10 million a day.

Since I could not compensate for the entire 22 million barrels or so a day that normally passes through the Straight, I am guesstimating that we will be short 10 million a day. The only way that I see that this shortage gets absorbed is by demand destruction. Figuring the world GDP and the world oil consumption and doing a little elementary math, the world economy must shrink by about 10 percent.

Worse.

It may happen in a year. It may happen in a month. We haven’t actually seen the oil shortages yet. The last ships through the Straight are just now unloading crude and refined products. Those can still be processed and delivered. The problem is that there are NO more ships and in many places there will be no more energy at any price.

This lack of energy will have cascading, let me rephrase that…This lack of energy might lead to cascading problems in the economy so that rather than stop all projects or slow all projects, some projects will stop, leaving down stream projects suspended due to dependancies and thus the energy efficiency of the economy may decline rather than increase. At least for a while. So while a 10 percent world wide economic contraction can be expected and after that contraction a new economic growth off of that baseline. The first little bit (A year, a quarter? I don’t know.) could be significantly higher than 10 percent.

Cheers
Qazulight (Probably be a good year to be rough necking in North Dakota)

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@qazulight think about the cascading supply chain issues (such as we saw during Covid). How does that change your forecast?

Wendy

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Energy supply chain issues are certainly concerning, the US economy faces other risks as well. With AI buildout driving a significant portion of GDP in the US, we may be facing some headwinds.

Looks like supply chain issues are creating a glitch in the matrix -

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I’m pretty sure that both Trump and Netanyahu will be removed when that happens. Everyone knows who to blame.

Few Americans are willing to pay an extra $1,000/year or more for gasoline as a result of funding Netanyahu’s military ambitions.

intercst

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Wendy,

The cascading problem doesn’t change it much. It adds a great deal uf uncertainty. Looking back on the terrible things that have happened in my lifetime, the thing that In recall the most is: The adaptability of humanity to really big problems.

I would not rule out a significant contraction in the first few months. Then triage.

For example States could suspend road building contracts.

Big businesses could reinstate work from home policies.

The federal governments would ban all unnecessary civilian flights.

Current commercial building projects could be suspended.

When humans look around they can remove nice to have projects from the immediate future.

The research I have not done is “Where is most of the oil being burned. And where is most of the oil that is being burned that is unnecessary and what or the mechanisms that will bring about the non burning of that oil.” That might be good AI prompt.

But, I actually do not think we are in a big a crisis as we were in 1973 or 2008. In 2008 we were on the edge an Apocalypse. Today is merely a bad situation.

I see people thinking we might see political change in the USA that will change the situation. I think they are wrong. Not there might be political change, rather that it will make a difference. At this point, USA has the of the choice of 1.5 to 2 million barrels a day or zero barrels a day through the Straight. Moreover, this is a situation that one cannot back out of no matter how disgusted one might be with the decisions that got us here.

I could be wrong here. I did not foresee the change in power in Hungary, I didn’t even account for the election. Still from what I can see today, “you
may feel some pressure here”

One last thing. There will be winners here. In the short term the frackers will make money. Chinese auto manufacturers will make money. Solar plus storage will make money.

Oh wait one more thing. In the 1970’s I recall that someone said, don’t know if it was true, that just the bunker fuel savings from more efficient super tanker was enough to balance the supply demand situation.

Cheers
Qazulight

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Wendy,

I put the question to Claude. I think the response is valid worst case scenario. Likely some of it happens and just as likely or more than likely we humanity makes adjustments to avoid the worst of it.

The key take away that is useful today is the vulnerability of highly leveraged fuel dependent businesses. Someone asked a successful investor when a good time to sell airlines was. His reply “Any time the market is open.”

How Oil Demand Destruction Actually Happens: A 30-90 Day Cascade Model
The mechanism is not conservation. It’s collapse of activity.
At 10% global GDP contraction you are in the worst economic event since the Great Depression. At 20% you are in genuinely uncharted territory — no modern economy has a reference point for that. The oil demand destruction embedded in those numbers happens through a specific sequence.
Stage 1: Price Spike Triggers Credit Stress (Weeks 1-6)
High oil prices are an immediate tax on every margin-dependent business. Trucking, shipping, airlines, agriculture, petrochemical manufacturing — their input costs spike before they can reprice outputs. Working capital gets consumed. Credit lines get drawn. The first casualties are not consumers, they are leveraged businesses with oil-intensive cost structures. Airlines ground routes. Shipping companies slow-steam or idle vessels. Agricultural operations defer inputs. Each of these removes oil demand — but as a side effect of financial stress, not as a decision.
Stage 2: Trade Volume Collapses (Weeks 4-10)
Global trade is the circulatory system of oil demand. Container shipping, bulk carriers, tankers moving non-oil cargo — all of it runs on oil. When trade finance tightens and import demand falls because economies are contracting, bunker fuel demand falls hard and fast. Shipping is roughly 5-6 million barrels per day globally. A serious trade contraction could pull 1-2 million bpd out of that alone within 60-90 days. This is actually one of the fastest large-volume demand destruction mechanisms available — and it’s entirely involuntary.
Stage 3: Industrial Production Cuts (Weeks 6-12)
Manufacturing slows when input costs spike and demand signals weaken simultaneously. China’s export manufacturing — the world’s largest single oil-consuming industrial complex — is acutely sensitive to both. If Western consumer demand drops because of economic stress while Chinese input costs rise due to oil prices, Chinese industrial output cuts happen fast and they are large. China’s industrial sector consumes something in the range of 3-4 million bpd directly. A 20% cut there alone is 600-800k bpd gone.
Stage 4: Consumer Demand Evaporation (Weeks 8-16)
This is the lagging indicator, not the leading one. Consumer driving and discretionary fuel use actually falls after the economic damage is done — job losses, income compression, credit tightening. But when it comes it is broad and sustained. The 2008-2009 crisis took roughly 3 million bpd of demand off the global market. A contraction twice as deep could take 5-7 million bpd.
Stage 5: Supply Chain Dependency Amplification
This is the 20% scenario trigger. The non-linear risk is that oil isn’t just an input — it’s the operational assumption embedded in just-in-time global supply chains. Those chains have almost no redundancy. A sustained price or availability shock doesn’t just raise costs — it breaks sequencing. When sequencing breaks, production stops even for industries that aren’t directly oil-intensive. Semiconductors, pharmaceuticals, food processing — all require inputs that require inputs that require oil. The multiplier on demand destruction in this scenario is not additive, it’s geometric.
The Shape of the Demand Destruction Curve
Weeks 1-4: 500k-1.5 million bpd comes off through behavioral and early financial stress. Weeks 4-8: 2-4 million bpd through trade and industrial slowdown. Weeks 8-16: 5-8 million bpd through full recessionary demand collapse. The 20% scenario implies 10-15 million bpd of sustained reduction — but you’ve broken the global economy to get there, and the recovery is measured in years not quarters.
The Asymmetry That Makes This Dangerous
Demand destruction through economic collapse is not clean or reversible. It doesn’t reduce oil consumption by making people drive less. It reduces oil consumption by destroying the economic activity that required the oil in the first place. When that activity comes back — if it comes back — it comes back slowly, unevenly, and with permanently altered trade relationships and supply chains. Some of what gets destroyed doesn’t reconstruct.
The oil market clears. But the clearing mechanism is a depression, not a policy response. The demand destruction happens. It just happens through wreckage rather than will.​​​​​​​​​​​​​​​​

Cheers
Qazulihht

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