WASHINGTON D.C. : The International Monetary Fund reduced its 2026 global growth forecast to 3.0% on Wednesday, citing continued risks from the Middle East war, trade fragmentation and potential market corrections in artificial intelligence expectations.
The global lender said the world economy avoided a more severe downturn from the conflict, as demand-driven momentum in the technology sector helped offset a war-related decline in energy supplies. Growth is expected to recover to 3.4% in 2027, though this remains below the 3.5% average recorded in 2024 and 2025.
The IMF increased its 2026 headline inflation projection by 0.3 percentage points to 4.7% from April, while forecasting a decline to 3.9% next year. Energy prices are now 25% higher than before the war started on February 28 and will remain elevated, according to the fund. The forecast assumes the Strait of Hormuz will begin reopening in mid-July, returning to prewar conditions by March 2027.
The outlook improved for energy exporters and countries integrated into the technology sector, while commodity importers not positioned to benefit from AI developments generally received downward revisions to their growth forecasts.
Global trade growth is projected to slow to 3.5% in 2026 from 5% in 2025, before recovering to 4.3% in 2027. The 2025 figure reflected heavy front-loading ahead of U.S. tariffs.
Deniz Igan, chief of the IMF Research Department’s World Economic Studies division, said the global economy showed more resilience than expected in April, despite the war’s impact and the Strait of Hormuz closure. The release of strategic oil reserves and commercial inventories, combined with rising energy efficiency, helped offset supply shortages.
“So far things have been okay, but that doesn’t take away the risk factors that are there, particularly with the war,” Igan told Reuters. A collapse of the peace deal and renewed fighting could pose significant risks, as countries have largely depleted their reserves.
The U.S. military launched a new wave of strikes against Iran on Tuesday and revoked a license allowing the country to sell oil after three tankers were hit in the Strait of Hormuz.
“A renewed conflict in the region is going to catch the global economy in a worse position than it was the first time,” Igan said.
The IMF maintained its 2026 U.S. growth forecast at 2.3% and raised its 2027 projection by 0.1 percentage point to 2.2%.
The euro area’s 2026 growth forecast was lowered to 0.9% from 1.1% in April, with the 2027 forecast unchanged at 1.2%.
Japan’s 2026 growth forecast decreased by 0.1 percentage point to 0.6%, while the 2027 forecast increased by the same amount to 0.7%.
China’s growth is now expected to reach 4.6% in 2026, up from the April forecast of 4.4%, with 2027 growth projected at 4.1%.
India received a small downgrade to 6.4% for 2026 from 6.5% in April, though the IMF raised its 2027 forecast to 6.7% from 6.5%.
The Middle East and Central Asia region saw its growth forecast cut by 1.2 percentage points to 0.7% from April, while the 2027 forecast was raised by 1.9 percentage points to 6.5%.
