The International Monetary Fund (IMF) has lowered its global growth forecast for 2026 to 3%, warning that the world economy continues to face significant risks from the conflict in the Middle East, rising trade fragmentation and uncertainty surrounding the artificial intelligence sector.
In its latest World Economic Outlook update, the IMF said global economic activity has proven more resilient than initially feared despite disruptions caused by the conflict. Demand linked to artificial intelligence and advanced technologies has helped offset some of the economic damage from reduced energy supplies following the outbreak of war.
The global lender expects economic growth to recover to 3.4% in 2027, although that remains below the average growth recorded in 2024 and 2025. The revised 2026 forecast is slightly lower than the 3.1% projection released in April.
The IMF also raised its inflation forecast for 2026, predicting headline inflation will reach 4.7%, up from its previous estimate. Inflation is expected to ease to 3.9% in 2027, but the fund noted that energy prices remain about 25% higher than they were before the conflict began in late February.
The updated forecast assumes that shipping through the Strait of Hormuz will gradually resume from mid-July, with traffic returning to pre-war levels by March 2027. It also projects an average oil price of $89 per barrel during the forecast period.
Petya Koeva Brooks, deputy director of the IMF’s research department, said the global economy had managed the initial shock better than expected and described the outlook as a V-shaped recovery, with slower growth this year followed by stronger expansion in 2027.
The IMF said higher oil prices were partially contained by releases from strategic petroleum reserves, increased production outside the Gulf region, improvements in energy efficiency and continued growth in renewable energy. Businesses also adjusted by finding alternative supply routes and energy sources.
Despite that resilience, IMF officials warned that renewed fighting in the Middle East could quickly reverse recent progress. A fresh escalation could drive commodity prices higher, tighten financial conditions, increase food insecurity in poorer nations and weaken economic growth. Officials also identified the possibility of a correction in financial markets linked to artificial intelligence investments as another downside risk.
The report highlighted differing regional prospects. The United States’ growth forecast for 2026 remained unchanged at 2.3%, while the eurozone forecast was lowered to 0.9%. Japan’s outlook was trimmed slightly, whereas South Korea received a sizeable upgrade due to strong exports of AI-related hardware.
China’s 2026 growth forecast was raised to 4.6% following stronger-than-expected economic performance earlier this year. India’s outlook was reduced marginally to 6.4% for 2026, although its 2027 forecast improved to 6.7%.
The Middle East and Central Asia recorded the largest downgrade, with the IMF cutting its 2026 growth forecast for the region to 0.7% because of the conflict. Even so, the fund expects a strong rebound in 2027 if regional conditions stabilise.
