IMF lowers 2026 world growth forecast as Middle East risks linger

The International Monetary Fund (IMF) has again reduced its global economic growth projection for 2026, now forecasting 3.0 percent growth. This downward revision reflects the lingering effects of the war in the Middle East, which has not been fully counteracted by a boom in artificial intelligence.

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its forecasts are “broadly unchanged” cumulatively for the next two years and described the bounceback as “a V-shaped recovery.”

The IMF's latest estimate, made before recent escalations between the United States and Iran, is a decrease from the 3.1 percent predicted in April. This marks the second time this year the fund has lowered its overall growth expectations. Global inflation is anticipated to rise to 4.7 percent this year, higher than previously projected. Despite these challenges, the overall slowdown is considered modest, with AI-driven momentum providing some economic support.

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The delayed recovery from war on Iran, longer disruptions and higher prices is part of the reason the world economy will take a bigger hit this year, she added.

Deniz Igan, division chief at the IMF’s research department, described the cumulative forecasts for the next two years as "broadly unchanged" and characterized the recovery as "V-shaped." However, she attributed the larger hit to the world economy this year to a delayed recovery from the conflict, longer disruptions, and higher prices. The IMF expects traffic normalization through the Strait of Hormuz by 2027.

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Energy exporters outside the conflict zone benefit from favorable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers.

The IMF highlighted significant economic divergences across countries. Energy exporters outside the conflict zone are benefiting from favorable trade terms, while economies integrated into the technology sector are experiencing stronger activity. Conversely, energy importers with limited participation in the technology value chain face weakening economic activity. The conflict's impact on the Strait of Hormuz has led to downgraded growth forecasts for the Middle East and Central Asia, with retail gasoline costs jumping significantly in emerging Asia.

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In contrast, activity weakens for energy importers with limited participation in the technology value chain,” it added.