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The International Monetary Fund lowered its global growth forecast for 2026 to 3.0 percent in an update to its World Economic Outlook released on July 8, warning that risks from the Middle East conflict, trade fragmentation and possible market reassessments of artificial intelligence potential remain elevated. The fund noted that the world economy had avoided a steeper downturn thanks to tech sector momentum offsetting energy supply disruptions from the war, according to the assessment. Growth is now expected to rebound to 3.4 percent in 2027, although that pace stays below the 3.5 percent average recorded for 2024 and 2025, the IMF stated in the report. A World Bank assessment projected even slower global expansion of 2.5 percent for 2026, reflecting additional pressures from the regional conflict on energy importers and vulnerable economies.
The IMF raised its 2026 headline inflation forecast by 0.3 percentage points to 4.7 percent compared with its April projection, the update showed, while anticipating a decline to 3.9 percent in 2027. Energy prices stand 25 percent higher than before the war began on February 28 and are expected to stay elevated, according to the IMF analysis. The new baseline assumes the Strait of Hormuz will begin reopening in mid-July and return to prewar conditions by March 2027, the fund added. Deniz Igan, chief of the IMF Research Department’s World Economic Studies division, said the global economy had proven more resilient than anticipated despite the war and the strait closure.
Global trade growth is forecast to slow sharply to 3.5 percent in 2026 from 5.0 percent in 2025 before recovering to 4.3 percent in 2027, the IMF reported. The 2025 figure reflected heavy front-loading ahead of anticipated US tariffs, according to the assessment. The outlook remains brighter for energy exporters and nations integrated into technology supply chains while commodity importers not positioned to gain from AI advances saw downward revisions to their growth projections, the fund said. An OECD economic outlook placed global growth at 2.8 percent for 2026, aligning with the theme of moderated expansion amid uncertainty.
The IMF left its 2026 growth forecast for the United States unchanged at 2.3 percent and raised the 2027 projection by 0.1 percentage point to 2.2 percent from April, its update indicated. It cut the euro area’s 2026 forecast to 0.9 percent from 1.1 percent while holding the 2027 figure at 1.2 percent. Japan’s 2026 growth estimate edged down 0.1 percentage point to 0.6 percent with the 2027 forecast lifted by the same margin to 0.7 percent, according to the IMF. Emerging market and developing economies saw their 2026 growth projection reduced by 0.1 percentage point to 3.8 percent while the 2027 outlook rose 0.3 percentage points to 4.5 percent.
China’s growth is now seen reaching 4.6 percent in 2026, up from the April forecast of 4.4 percent, and 4.1 percent in 2027, up from 4.0 percent, the IMF reported. India’s projection for 2026 was trimmed to 6.4 percent from 6.5 percent in April although the 2027 forecast rose to 6.7 percent from 6.5 percent. The Middle East and Central Asia region, most affected by the conflict, had its 2026 growth forecast cut by 1.2 percentage points to 0.7 percent even as the 2027 projection increased by 1.9 percentage points to 6.5 percent, according to the fund’s figures.
“The global economy as a whole has so far weathered the shock from the war better than feared” the IMF said in the World Economic Outlook update. Igan told Reuters that prices were higher and confidence was down but strategic oil reserve releases, commercial inventories and rising energy efficiency had helped offset shortages while the private sector adapted with alternative routes and supplies. “So far things have been okay but that doesn’t take away the risk factors that are there particularly with the war” she added. The IMF dropped the three separate scenarios published in April before a US-Iran ceasefire and reverted to a traditional baseline that compares with an earlier assumption of a shorter conflict.
