IMF Slashes 2026 Global Growth Forecast to 3% and Warns Inflation Will Climb as Mideast War Bites
The International Monetary Fund cut its outlook and lifted its inflation projection to 4.7%, blaming a 25% surge in energy prices since the war began even as it flagged an offsetting boost from artificial intelligence.
The International Monetary Fund on Wednesday cut its forecast for global economic growth in 2026 to 3.0%, down from the 3.1% it projected in April and well below the 3.5% pace the world economy sustained through 2024 and 2025. The downgrade lands as war in the Middle East drives up energy costs and rattles supply chains, forcing the fund to warn that inflation will run hotter than it expected just three months ago.
The IMF now sees global headline inflation rising to 4.7% in 2026 from 4.1% last year, before cooling to 3.9% in 2027. That 2026 figure is 0.3 percentage points above the fund's April estimate. The single biggest driver is energy: the IMF said prices are now 25% higher than they were before fighting erupted on February 28 and are likely to stay elevated as the conflict between the United States, Israel and Iran flares back to life.
The fund framed the outlook as a tug-of-war between two powerful and opposing forces. On one side is a negative supply shock — the war, which has choked oil and gas flows through the Strait of Hormuz and pushed up costs for businesses and households worldwide. On the other is what the IMF called a positive technology shock, driven by rapid advances in artificial intelligence that are lifting productivity and investment in the world's largest economies.
The pain is concentrated closest to the fighting. The IMF slashed its growth forecast for the Middle East and Central Asia region by a steep 1.2 percentage points, to just 0.7% for 2026. Yet the fund also sketched a sharp rebound if the conflict subsides, raising its 2027 projection for the same region by 1.9 points to 6.5% — an implicit bet that the war will eventually wind down and reconstruction will follow.
Economists warned that the numbers could deteriorate further if the Strait of Hormuz confrontation escalates. Roughly a fifth of the world's oil moves through the waterway, and a prolonged disruption would ripple through fuel, food and shipping costs across every continent. The IMF also cited trade fragmentation and elevated tariff barriers as persistent drags, cautioning that the balance between the war's damage and AI's boost could tip either way depending on how long the shooting lasts.
Originally reported by Al Jazeera.