In its latest outlook released on Wednesday, the IMF projected that the world economy would grow by 3.0 per cent in 2026, down from the 3.1 per cent forecast issued in April. The new projection also represents a slowdown from the estimated growth recorded in 2025.
The Fund attributed the downgrade to the lingering economic impact of the Middle East conflict, noting that gains from the rapid expansion of artificial intelligence have not been sufficient to offset disruptions caused by the war.
The IMF also revised its inflation outlook upward, projecting global inflation at 4.7 per cent this year, higher than previously expected.
According to the Fund, although the AI-driven technology sector has provided some support for economic activity, prolonged geopolitical tensions continue to weigh on global growth prospects.
Speaking on the report, Deniz Igan, Division Chief at the IMF’s Research Department, said the Fund still expects the global economy to rebound in 2027, describing the anticipated recovery as “V-shaped.”
She explained that a delayed recovery from the conflict with Iran, prolonged supply disruptions and elevated energy prices were among the factors behind the weaker growth outlook.
The IMF noted that the economic impact of the conflict has varied across countries. While energy-exporting nations outside the conflict zone have benefited from higher oil prices, energy-importing economies with limited participation in the technology sector have experienced slower growth.
It said economies integrated into the AI-driven technology supply chain have remained relatively resilient despite the disruptions.
The report highlighted that the conflict, which disrupted energy shipments through the Strait of Hormuz, triggered a sharp increase in global oil prices, putting pressure on economic activity worldwide.
Although energy flows resumed following a temporary ceasefire between the United States and Iran, the IMF warned that renewed hostilities could once again disrupt commodity markets, strain supply chains and tighten global financial conditions.
The Fund projected that the United States economy would grow by 2.3 per cent this year, while growth in the Middle East and Central Asia was downgraded by 1.2 percentage points to 0.7 per cent.
Growth in the euro area was revised down to 0.9 per cent, while France’s economy is now expected to expand by 0.6 per cent.
China was one of the few major economies to receive an upward revision, with its growth forecast increased slightly to 4.6 per cent.
Despite the weaker outlook, the IMF expects global growth to recover to 3.4 per cent in 2027 as geopolitical tensions ease and energy markets stabilise.
However, it cautioned that a renewed escalation of the Middle East conflict remains one of the biggest risks to the global economy, warning that it could intensify commodity price volatility, disrupt trade, worsen inflationary pressures and weaken financial markets.
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