The International Monetary Fund (IMF) has lowered its 2026 global growth forecast as renewed fighting in the Middle East creates fresh uncertainty for the world economy, warning that higher energy prices, inflation pressures and geopolitical risks could slow global recovery.
In its latest World Economic Outlook update released on Wednesday, the IMF projected that the global economy will expand by 3.0 percent in 2026, a reduction from its previous estimate of 3.1 percent released in April.
The downgrade marks the second time this year that the global lender has reduced its growth expectations, reflecting increasing concerns over the impact of conflicts, trade disruptions and economic uncertainty.
IMF Deputy Director of the Research Department, Petya Koeva Brooks, said recent developments in the Middle East demonstrated the risks surrounding the economic outlook.
“Developments overnight illustrate the uncertainty and risks that surround the outlook,” Brooks told reporters, adding that the IMF would continue monitoring events closely.
Her comments came after renewed tensions between the United States and Iran following the collapse of a temporary ceasefire arrangement. The escalation has raised concerns over possible disruptions to energy markets, particularly the movement of oil shipments through strategic waterways.
The IMF said global inflation is expected to rise to 4.7 percent this year, higher than earlier projections, partly due to pressure from energy costs and conflict-related disruptions.
The fund estimates that economic disruptions caused by the war could take around three quarters of a year to gradually normalize. However, it warned that a sustained increase in oil prices or inflation expectations could create further damage to global growth.
AI Boom Provides Some Support for Global Economy
Despite the negative impact of geopolitical tensions, the IMF said strong investment and demand linked to artificial intelligence technologies are helping to cushion some of the economic damage.
The fund expects global growth to recover slightly in 2027, reaching 3.4 percent, describing the projected rebound as a “V-shaped recovery.”
Deniz Igan, a division chief at the IMF’s research department, said the global economy had shown resilience despite the conflict, although the effects varied significantly between countries.
According to the IMF, countries outside the conflict zone that export energy products could benefit from higher commodity prices, while economies deeply connected to technology supply chains may continue to experience stronger growth.
However, energy-importing countries with limited involvement in technology-driven industries are expected to face greater challenges due to rising costs.
The Middle East conflict has already affected global energy markets after US-Israeli strikes targeting Iran triggered retaliatory measures from Tehran, including disruptions around the Strait of Hormuz, one of the world’s most important oil transit routes.
The uncertainty caused oil prices to rise sharply as markets reacted to fears of reduced supply. Although oil and gas shipments resumed after a temporary agreement between Washington and Tehran, renewed hostilities have increased concerns about future disruptions.
Economic Impact Varies Across Regions
The IMF warned that the global economic picture remains uneven, with some countries absorbing the impact of the conflict more severely than others.
“Although the world economy has weathered shocks from the war better than feared, the global picture blurs glaring differences across countries,” the IMF said.
Retail gasoline prices increased significantly in several regions after the conflict began, with emerging Asian economies experiencing a sharper rise compared with Latin America.
The United States economy is still expected to expand by 2.3 percent in 2026, according to the IMF forecast. However, growth expectations for the Middle East and Central Asia were reduced by 1.2 percentage points to 0.7 percent.
The eurozone is projected to grow by 0.9 percent, also lower than previously estimated, while France’s growth forecast was reduced to 0.6 percent.
China, the world’s second-largest economy, received a slight upward revision, with growth now expected at 4.6 percent.
Despite the improved outlook for some major economies, the IMF cautioned that the full economic effects of the conflict have not yet been completely reflected.
The release of strategic oil reserves has helped ease immediate pressure, but the fund warned that continued supply disruptions and increased trade fragmentation could push prices higher.
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Technology Supply Chains Offer Economic Bright Spot
The IMF identified artificial intelligence-related industries as one of the few areas providing positive momentum for the global economy.
Countries that play key roles in AI hardware production, including Taiwan, South Korea, Thailand and Malaysia, have shown resilience despite exposure to global disruptions.
The fund said these economies have benefited from strong demand for technology products, helping offset some of the negative effects of geopolitical instability.
However, IMF officials stressed that inflation remains a concern rather than a completed challenge.
Igan said higher inflation expectations this year represent a temporary interruption rather than a reversal of the broader global trend toward declining inflation.
The IMF’s latest forecast highlights the fragile state of the global recovery as governments and businesses continue to navigate geopolitical tensions, energy market uncertainty and changing patterns in global trade.
While growth remains positive, the institution warned that further escalation in the Middle East could create additional pressure on economies worldwide.
AFP
