The fallout from the Iran war has ‘suddenly clouded’ the global economic outlook, says the IMF – National
The fallout from the conflict in the Middle East caused by the war with Iran has “suddenly clouded” the global economic outlook, the International Monetary Fund said on Tuesday as it warned of slower growth compared to 2025.
The IMF lowered its global growth forecast to 3.1 percent in 2026 from the 3.3 percent it forecast in January. That’s also down from the 3.4% increase seen last year.
That smaller 0.2 percent reduction is based on assumptions of “temporary tension,” IMF economic adviser Pierre-Olivier Gourinchas wrote in a report.
“The global outlook has suddenly darkened following the outbreak of war in the Middle East” more than a month ago, he said, “disrupting what had been a steady growth trajectory” and upending the projected improvement in the IMF’s forecast.
“The duration and scale of the conflict and the time it will take to generate energy and to normalize after the end of the conflict will determine the final magnitude of the shock to the global economy,” Gourinchas added.
Although a fragile two-week ceasefire remains in place, talks to end the war have yet to produce a peace deal, prompting fears that the offensive could resume.
US and Israeli strikes on Iran – as well as Tehran’s closure of the Strait of Hormuz and retaliatory strikes on oil refineries and other energy infrastructure in neighboring countries – have sent oil and gas prices skyrocketing around the world.
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As a result, the IMF has set its expectation of global inflation this year to 4.4 percent from 4.1 percent in 2025 and from the 3.8 percent it predicted this year in January.
The IMF’s gloomy outlook comes less than two weeks after Deloitte Canada again lowered its forecast for Canada’s economic growth to 1.2% in 2026 – down from 1.5% estimated in January, and a year-ago gain of 1.7.
The IMF forecast for Canada is more optimistic, predicting growth of 1.5 percent this year, down just 0.1 percent from its January forecast. Both the January report and Tuesday’s update forecast a 1.9 percent increase in 2027.
The United States economy is still expected to grow by 2.3 percent in 2026, which the IMF says is due to monetary policies and interest rate cuts last year.
That forecast was also downgraded by 0.1 percent from January, reflecting what the report called the “negative negative impact” of the war with Iran, as the US exports more oil and gas than it brings in to foreign markets compared to other nations.
Still, the IMF notes that inflation remains above the US Federal Reserve’s target of two percent, sitting above three percent in the most recent data.
“I think they probably overreacted, but we’ll see,” US Treasury Secretary Scott Bessent told reporters about the IMF report.
He said he is confident that the US will turn around higher rates very quickly, unlike countries that use subsidies that can increase lending or prolong the effects of inflation.
The IMF report was more pessimistic in lowering its forecast for emerging market and developing economies to 3.9 percent from 4.2 percent in January.
The report noted that high food and energy prices will have a major impact on those countries, which include much of Asia, Latin America and Africa, and even large economies such as China and India.
One winner from the Middle East conflict is Russia, an energy exporter that stands to benefit from higher prices. The IMF raised its forecast for Russia’s economy, which has been hit hard by sanctions following the invasion of Ukraine, to 1.1 percent in 2022 from 0.8 percent in January.
Gourinchas told a news conference on Tuesday that the 3.1 percent global growth was an indication that “there is not yet” a significant amount, but he warned that that could change if the war in the Middle East continues.
“I would say that we are in the middle between the reference and the worst case” of weak growth of 2.5 percent in 2026, he said.
“And then, every day that goes by and every day that we have more power outages, we’re getting closer to a bad situation.”
The IMF is a lending institution for 191 countries that works to promote economic growth and financial stability and reduce global poverty.
– in files from the Associated Press and Reuters
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