Washington:<Text>

IMF First Deputy Managing Director Daniel Katz cautioned that the ongoing conflict in the Middle East poses significant risks to the global economy, particularly affecting inflation and growth. Speaking at the Milken Institute's Future of Finance event, Katz noted the challenges in assessing the full impact of the situation as it continues to evolve.

According to Philippines News Agency, Katz highlighted that before the recent escalation in the Gulf, the global economy was on track for continued solid expansion. However, the recent developments have introduced new uncertainties, with the ultimate economic consequences largely dependent on the conflict's duration and intensity.

Katz emphasized that the conflict could significantly impact the global economy across various metrics, including inflation and growth. He noted that the IMF plans to assess the direct effects on the region, such as physical damage to infrastructure and disruptions in tourism, air transportation, manufacturing, and energy facilities. A notable concern is the potential closure of the Strait of Hormuz, which could have severe economic consequences, particularly for oil-exporting countries.

The extent of the impact will differ based on countries' exposure levels and fiscal buffers, Katz explained. He also pointed to recent increases in oil and natural gas prices, alongside moderate rises in interest rates, indicating that markets are considering the risk of higher energy costs driving inflation.

Katz stated that if the rise in energy prices is temporary and inflation expectations remain stable, central banks might overlook the shock. However, a prolonged energy shock that disrupts inflation expectations could necessitate a monetary policy response. In light of ongoing uncertainty, Katz concluded that central banks are likely to act cautiously and adapt policies as the situation unfolds.