The International Monetary Fund (IMF) cut its 2026 global growth projection on Tuesday, warning that the world economy could be “thrown off course” by war in the Middle East – as the conflict roils commodity markets and sparks higher prices.
The global economy is set to grow by 3.1 per cent this year, said the IMF in its World Economic Outlook report, released during its spring meetings in Washington.
This is down from 3.3pc forecast in January before hostilities erupted on February 28 with US-Israeli strikes against Iran that prompted Tehran’s retaliation and sparked a broader conflict in the region.
“We were planning to upgrade growth for 2026 to 3.4pc” if not for the war, IMF chief economist Pierre-Olivier Gourinchas told AFP.
Prices of oil, gas and fertilisers have surged, as Iran virtually blocked traffic through the Strait of Hormuz, a key shipping waterway. US President Donald Trump has also ordered a naval blockade around Iran’s ports.
Prices of oil, gas and fertilisers have surged, as Iran virtually blocked traffic through the Strait of Hormuz, a key shipping waterway. US President Donald Trump has also ordered a naval blockade around Iran’s ports.
The IMF expects higher inflation this year at 4.4pc, 0.6 percentage points above its January forecast.
Still, the impact of oil shortages could be worse.
Compared to the oil shocks of the 1970s, “the global economy is much less oil dependent now than it was back then,” Gourinchas said at a Tuesday press conference.
“There are many other sources of energy, renewables, nuclear and other things, and also the global economy has become much more efficient in terms of how much it needs oil to produce GDP,” he said. “That’s a source of resilience.” After this, the “disinflation path” of recent years should reassert itself, Gourinchas said.
But these projections assume a relatively short-lived conflict with temporary energy market disruptions.
In more adverse scenarios where energy prices remain steep, global growth could slow to 2.5pc or even around 2.0pc.
“This latest shock comes less than a year since the shift in US trade policies, and the transition to a new international trade system is still ongoing,” the IMF said.
A year ago, Trump unleashed sweeping tariffs on US trading partners, rocking financial markets and snarling supply chains.
Some of the tariffs have been struck down by the Supreme Court, but uncertainty lingers as Trump moves to reimpose duties via other means.