The IMF warned that ongoing risks posed by the war in the Middle East, could cause trade fragmentation, extend commodity price volatility and further disrupt supply chains, raise prices and weigh on global financial conditions.
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The International Monetary Fund (IMF) on Wednesday inched its 2026 global growth forecast lower to 3%, a figure that has fallen from 3.3% at the start of the year, while it said the global disinflation trend since early 2024 has stopped.
The IMF warned at the release of its global economic outlook that ongoing risks posed by the war in the Middle East could cause trade fragmentation, extend commodity price volatility, and further disrupt supply chains, raise prices, and weigh on financial conditions. A fragile peace agreement between the US and Iran appeared broken on Wednesday when renewed attacks by the US in Iran followed Iran's attacks on vessels transiting through the Strait of Hormuz.
The IMF said a possible correction in technology-driven expectations added to the downside risks for the outlook, whereas eroded policy buffers could also amplify those risks.
The global lender said the world economy had dodged a sharper downturn as a result of the war, with demand-driven momentum in the tech sector, driven by the growing use of AI, helping to offset a war-related drop in energy supplies.
The IMF predicted that growth should rebound to 3,4% in 2027, but that is still below the average of 3,5% seen in 2024 and 2025. “The outlook is uneven: The war shock is weighing on energy importers and vulnerable economies, while AI-driven demand is lifting countries integrated into the global technology value chain,” the IMF said.
It said countries should work on structural reforms that could improve energy security in countries and AI readiness. It predicted that global headline inflation will increase from 4,1% in 2025 to 4,7% in 2026, before declining to 3,9% in 2027. “
Slightly revised upward from April, these projections indicate that the disinflation trend in place since the beginning of 2024 has stalled,” the IMF said.
Risks are more balanced than in April, but downside risks from renewed conflict and financial market repricing persisted. Policymakers should preserve price stability, rebuild fiscal space, and strengthen adaptability,” the IMF said.
It said energy prices were 25% higher now than before the war began on February 28 and would remain higher. The new forecast assumed the Strait of Hormuz would start to reopen in mid-July, reaching prewar conditions by March 2027.
The outlook is brighter for energy exporters and countries that are closely integrated into the technology sector, while commodity importers that are not well-positioned to benefit from AI developments generally saw downgrades in their growth forecasts, a group that includes many low-income countries.
Global trade growth was projected to slow sharply to 3,5% in 2026 from 5% in 2025, a year marked by heavy front-loading ahead of US tariffs, before rebounding to 4,3% in 2027.
Prices were higher, confidence was down, but the release of strategic oil reserves and commercial inventories - along with rising energy efficiency - had helped to offset supply shortages. The private sector had also adapted quickly, finding alternative routes and supplies.
A renewed conflict in the region is going to catch the global economy in a worse position than it was the first time.
Emerging market and developing economies saw a 0,1 percentage point cut in their growth forecast to 3,8% in 2026, while the 2027 forecast was raised by 0,3 points to 4,5%. China's growth was now expected to reach 4,6% in 2026, up from the April forecast of 4,4%. India, one of the world's fastest-growing economies, also got a small downgrade to 6,4% from 6,5% in April.
“The global economy as a whole has, so far, weathered the shock from the war better than feared,” the IMF economists wrote in the report. Oil-producing countries in the Middle East have been hit hardest by the war and are expected to face sharp contractions this year.