Can global resilience trump disruption?
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For how long can we manage to combine a resilient economy with chaotic politics? Can the answer really be “forever”? If not, will it end with the triumph of resilience over chaos, or the reverse? These are the questions raised by today’s combination of a robust economy with a politics that could be deemed farcical, were it not so serious.
At the beginning of last week, Donald Trump warned Iran that if the Strait of Hormuz were not reopened, “The entire country can be taken out in one night, and that night might be tomorrow night”. Two days later, we were informed that the US and Iran had agreed to a two-week ceasefire that would open the Strait. Then, as the ceasefire turned out not to be a ceasefire and the Strait stayed closed, US vice-president JD Vance went to Islamabad to negotiate a peace deal. That failed. Thereupon, Trump wrote on Truth Social that “Effective immediately, the United States Navy . . . will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz”. Subsequentlythe US explained that its blockade would cover “the entirety of the Iranian coastline” including ports and oil terminals, and apply to all ships “regardless of flag”.
What can we make of all this? One point is that confusion is a feature, not a bug, in the Trumpian playbook. Yet unpredictability has consequences. The IMF’s latest World Economic Outlook starts with a discussion of uncertainty. The current war in the Middle East is a big source of such uncertainty. The ups and downs of US trade policy under Trump are another, not to mention the war in Ukraine and the ruptures in the western alliance. Not surprisingly, various measures of political and economic uncertainty are elevated. (See charts.)
Given this background, the IMF has in recent years taken a novel approach to its forecasts. Instead of the traditional “baseline”, it presents a “reference forecast”, based on the assumption that the disruptions caused by the war with Iran will fade by mid-2026. But it also adds “adverse” and “severe” scenarios. In the former, a more prolonged conflict would keep energy prices higher for longer. In the latter there would be even more extensive damage to energy infrastructure in the region.
In the reference forecast, global growth is forecast to be 3.1 per cent in 2026 and 3.2 per cent in 2027 — below the 3.4 per cent in 2024-25, and to settle at the lower rate in the medium term. This would be well below the 2000-19 average of 3.7 per cent. This most recent forecast for global growth in 2026 is a mere 0.2 percentage points below that published in January 2026. But, notes the WEO, absent the war, growth this year would have been revised upwards. Furthermore, inflation is expected to reach 4.4 per cent this year.
Under the Fund’s adverse scenario, however, global growth would slow to 2.5 per cent in 2026 and inflation would reach 5.4 per cent. Under its still more severe scenario, global growth would be cut to around 2 per cent this year, while inflation would reach 5.8 per cent. Thus, the economic impact of the war depends on what happens next: a cessation of hostilities and reopening of the Strait of Hormuz in the near future, at the benign end, or a prolonged and destructive conflict, at the most malign.
The costs of the war are also unevenly spread; the burden is heavier in the conflict region, for commodity importers and countries with pre-existing fragilities. Needless to say, none of that seems to worry those who began it.
If we look at an even wider picture, we can identify more worrying and also more cheering possibilities. On the former, as the Fund notes, “downside risks dominate”. We are, as Mark Carney has notedin an era of “rupture”. The forces at work look not that dissimilar to those of the 1914-45 period, with huge shifts in relative power and ideological and technological upheavals. Today, too, we can see many risks: geopolitical tensions; shocks to supplies of essential raw materials; trade disruptions; disappointment in the profitability of — and so a collapse of investment in — AI; prolonged fiscal deficits and ever greater accumulations of public debt; and damage to crucial institutions, notably central banks, and a consequent destabilisation of inflation expectations. To be added to that list — albeit not by the IMF — is the collapse of the US as a benign hegemon: the language and attitudes of those promoting this war are its coup de grâce.
Yet there are also upsides. As the IMF rightly stresses, “Before the war, the global economy was performing better than expected”. Notably, growth in tech exports, boosted by the AI boom, helped offset the drag of Trump’s tariffs. The impact of the latter was also offset by the fast reorientation of global commerce in response to the trade war between the US and China. So far, moreover, US protectionism has not spread worldwide.
More recently, the electoral defeat of Viktor Orbán in Hungary suggests that his style of politics — the marriage of corruption to culture wars — adopted by Trump and promoted by Putin can be defeated, provided elections are reasonably free, not least because this does not work. Moreover, just as the world does not wish to follow Trump’s protectionism, it does not (so far) wish to follow his newfound bellicosity. A demand for co-operation and peaceful relations still exists. Humanity has not yet entirely abandoned all it has learnt for the follies of aggressive nationalism or supposedly sacred wars.
The IMF is describing a world far from the one hoped for by its creators in 1944. But the WEO shows that such a world has not yet died. What is at stake is not just peace and prosperity, but a concept of civilisation. Of that Putin and Trump have no notion. Some, however, still forget.
