Ministers warn of extended market volatility amid Middle East crisis

Finance ministers from more than 10 countries cautioned on Wednesday that the ongoing Middle East conflict would continue to weigh on global growth, inflation, and financial markets, even if a lasting resolution is achieved.

The warning came in a joint statement issued during the International Monetary Fund and World Bank Spring Meetings in Washington.

The ministers highlighted that the economic consequences of the conflict are unlikely to fade quickly, underlining concerns over prolonged uncertainty in global markets.

Energy security and supply chains at risk

In the joint statement, the ministers said, "Renewed hostilities, a widening of the conflict or continued disruption in the Strait of Hormuz would pose serious additional risks to global energy security, supply chains, and economic and financial stability."

The Strait of Hormuz remains a critical route for global energy shipments.

Any disruption could have significant ripple effects on oil supply and pricing, further intensifying inflationary pressures worldwide.

The ministers emphasised that even in the event of de-escalation, the global economy would continue to face challenges stemming from the conflict.

"Even with a durable resolution of the conflict, impacts on growth, inflation and markets will persist," the statement added.

The statement was signed by finance ministers from Britain, Australia, Japan, Sweden, the Netherlands, Finland, Spain, Norway, Ireland, Poland, and New Zealand.

The coordinated message reflects a shared concern among advanced economies about the broader implications of geopolitical instability in the Middle East.

The ministers underscored the importance of maintaining stability in financial systems while addressing the immediate and long-term impacts of the crisis.

Germany flags domestic economic impact

Germany is also feeling the economic effects of the conflict despite not being directly involved.

German Finance Minister Lars Klingbeil said the war is already affecting the country’s economic outlook.

"But what we can already see now is that this war is also harming us in Germany in terms of ‌economic ⁠growth," Klingbeil said in Washington on the sidelines of the IMF Spring Meetings.

Klingbeil added that the government’s updated forecasts are still being prepared and declined to comment further ahead of their release next week.

Meanwhile, the International Monetary Fund has lowered Germany’s growth projections, estimating expansion of 0.8% in 2026 and 1.2% in 2027, both revised down by 0.3 percentage points from earlier forecasts.

Commitment to fiscal discipline

Addressing potential policy responses, the ministers acknowledged the constraints on government finances.

They stated, “With government balance sheets constrained, we commit to ensuring that any domestic responses must be fiscally responsible and targeted at those who most need support."

This highlights a cautious approach to fiscal intervention, focusing on targeted measures rather than broad-based spending increases, which could further strain public finances.

The ministers also issued a strong call against protectionist measures that could exacerbate the situation. They said, "We commit to avoiding, and call on all countries to avoid, protectionist actions, including unjustified export controls, stockpiling and other trade barriers in hydrocarbon and other supply chains affected by the crisis."

Such actions, they warned, could disrupt already strained supply chains and worsen economic instability.

The joint statement underscores the fragile state of the global economy amid geopolitical tensions.

While a resolution to the conflict could ease immediate risks, finance ministers made it clear that the aftereffects would linger across key economic indicators, including growth and inflation.