Fiscal Expansion Risks Revealed in the IMF Outlook

■ IMF Outlook Shows Increasingly Distinct Stances Among Major Countries' Monetary Policies in Response to Rising Oil Prices  

■ The IMF criticizes fiscal policies such as energy price caps and subsidies, deeming them inefficient and urging their avoidance. 
 
The International Monetary Fund (IMF)'s World Economic Outlook, released on the 14th, indicates that global economic growth in 2026 has been revised down by 0.2 percentage points to 3.1% year-on-year, influenced by tensions in the Middle East. According to the IMF, under the baseline scenario before the conflict, the global economic outlook has been revised upward by 0.1 percentage points. In comparison, the downward revision due to rising oil prices is only 0.3 percentage points, indicating a relatively limited overall impact. However, this assessment assumes the conflict will end sooner rather than later and anticipates that the average oil price in 2026 will stabilize slightly above $80 per barrel. In contrast, the IMF also presented two risk scenarios: "Adverse" and "Severe." In a severe scenario where energy infrastructure is further damaged, and oil prices continue to rise (to $110 per barrel in 2026 and $125 per barrel in 2027), economic growth will fall to 2% (a downward revision of 1.3 percentage points from previous forecasts), and is expected to slow to the level deemed a recession by the IMF. 

 
Against this backdrop, differences in monetary policy stances among countries are expected to become more pronounced. The US is expected to begin cutting interest rates by the end of 2026, lowering the policy rate from the current 3.75% to approximately 3.1% by the end of 2027. On the other hand, the Eurozone, facing inflationary pressures from rising energy prices, is expected to raise interest rates by 50 basis points in 2026. Japan, with its relatively lagging policy normalization process, is expected to continue gradually raising interest rates toward what is considered a neutral level of 1.5%. The IMF points out that, against the backdrop of tensions in the Middle East, the monetary policy responses of different countries will depend on the degree to which inflation expectations are anchored and the extent of the secondary transmission effect, thus resulting in differences. However, raising interest rates remains one of the available options for maintaining price stability. Raising interest rates too early could trigger risks of economic and financial instability; simultaneously, if economic activity falls below the potential growth rate, there is also a possibility of interest rate cuts. 

 
Regarding fiscal policy, the IMF explicitly opposes addressing rising energy prices through widespread subsidies or setting price caps. The IMF believes that such policies not only distort the role of prices in supply and demand regulation but also often incur high fiscal costs. Therefore, fiscal support should be precisely targeted and include clear "sunset clauses" to ensure the measures are temporary. However, in Japan and major European countries, due to political factors, policies to curb energy prices have been successively introduced, widening the deviation from the IMF's recommendations. Although the current scale of countermeasures is relatively controlled compared to fiscal spending during the 2022 crisis, such fiscal expansion could not only continue to push up inflationary pressures but also potentially translate into upward pressure on interest rates in the medium to long term by increasing the fiscal burden.