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IMF cuts 2026 global growth to 3% on Middle East war
International Monetary Fund revises down Mena region’s GDP growth forecast for 2026 by 1.2 per cent to 0.7 per cent before bouncing back to 6.5 per cent next yer
- PUBLISHED: Wed 8 Jul 2026, 5:37 PM
Global economic growth is expected to ease to 3.0 per cent in 2026 and pick up to 3.4 per cent in 2027, down from an average of 3.5 per cent in 2024-25, the International Monetary Fund said, as the fallout from the war in the Middle East is being partly offset by a fast-accelerating global technology cycle driven by artificial intelligence (AI).
The Fund’s latest World Economic Outlook (WEO) update said the overall growth figures are broadly unchanged on a cumulative basis compared with its April 2026 forecasts, but the modest headline slowdown masks sharply diverging fortunes across countries depending on their exposure to the conflict and their position in the global technology value chain.
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Global headline inflation is now projected to rise to 4.7 per cent in 2026, up from 4.1 per cent in 2025, before easing to 3.9 per cent in 2027. The upward revision from April signals that the disinflation trend under way since early 2024 has stalled.
Mena region
The Middle East and Central Asia region is bearing the brunt of the shock.
Growth in the region is projected to drop sharply to just 0.7 per cent in 2026, before rebounding to 6.5 per cent in 2027 – a downward revision of 1.2 percentage points for this year and an upward revision of 1.9 percentage points for next year compared with April's forecasts.
The IMF attributed the revision to an assumed longer closure of the Strait of Hormuz and a correspondingly sharper rebound once disruptions ease.
Iraq, Kuwait and Qatar are expected to see sharp economic contractions in 2026, followed by double-digit expansions in 2027.
Saudi Arabia is seen as somewhat more insulated thanks to its more diversified export routes, with growth forecast at 1.7 per cent in 2026 and 5.5 per cent in 2027.
Iran’s economy is now projected to contract by 5.4 per cent in 2026, an upward revision of 0.7 percentage point from April, reflecting stronger-than-expected oil exports in March and April and some easing of export restrictions. However, its 2027 forecast was revised down by 0.3 percentage point due to the smaller preceding contraction.
Energy prices to stay elevated
The average petroleum spot price index is projected at $89 a barrel, 9 per cent higher than assumed in the April WEO reference forecast – underscoring how energy markets remain the primary channel through which the war is being transmitted to the wider global economy.
The IMF noted that the global economy has so far weathered the shock better than feared, with limited movement in commodity prices, inflation expectations and financial conditions.
However, it cautioned that transmission is still in its early stages: commercial and strategic destocking have provided temporary relief from reduced energy flows, while forward-looking indicators such as supply chain pressure gauges and manufacturing PMIs point to softer momentum ahead.
India fastest-growing economy
Advanced economies are projected to grow 1.7 per cent in 2026 and 1.8 per cent in 2027, with net energy exporters cushioned by favourable terms of trade and net energy importers facing a sharper drag unless offset by technology-driven activity.
The United States is forecast to grow 2.3 per cent in 2026 and 2.2 per cent in 2027, virtually unchanged from April, supported by fiscal policy, accommodative financial conditions and continued technology-related investment, given its status as a net energy exporter.
The euro area's growth forecast was trimmed to 0.9 per cent in 2026, 0.2 percentage point lower than in April. The UK is expected to slow to 1.0 per cent growth in 2026 before rising to 1.3 per cent in 2027.
China’s growth is expected to slow to 4.6 per cent in 2026 on higher oil prices and structural headwinds, while India remains among the fastest-growing major economies at 6.4 per cent, driven by strong private consumption and services activity.
Risks tilted to the downside
The IMF said risks to the outlook are more balanced than in April but still skew to the downside.
A renewed escalation of the Middle East conflict could prolong commodity price volatility, further disrupt supply chains and tighten financial conditions, while trade fragmentation could also weigh on output and push prices higher. A correction in technology-driven market expectations poses an additional downside risk, compounded by eroded fiscal buffers in many economies.
On the upside, a faster-than-expected normalisation of energy markets, stronger technology investment, renewed international cooperation to lower trade barriers, and structural reforms could all lift the outlook.
The Fund called for policymakers to prioritise restoring price stability through clear communication and central bank independence, rebuild fiscal buffers, and pursue structural reforms to strengthen energy security, AI readiness and international cooperation.
