IMF cuts global growth forecast, blaming ‘war in the Middle East’ for stalled economic momentum

(SeaPRwire) –   The International Monetary Fund cautioned on Tuesday that the conflict involving Iran has disrupted global economic momentum this year, likely resulting in lower growth relative to 2025.

The IMF revised its global growth projection downward to 3.1% for 2026, compared to a 3.3% forecast made in January. This anticipated growth rate represents a slowdown from an expected 3.4% expansion in 2025.

Military actions by the U.S. and Israel against Iran—along with Tehran’s closure of the Strait of Hormuz and its retaliatory attacks on oil refineries and energy infrastructure in neighboring nations—have sent worldwide oil and gas prices soaring.

Consequently, the IMF raised its global inflation forecast for this year to 4.4%, up from 4.1% projected for 2025 and from a 3.8% estimate for this year made in January.

Prior to the war, the global economy demonstrated unexpected resilience despite former President Donald Trump’s protectionist measures, which erected significant import tariffs around the United States. The world’s largest economy was once a largely open market for imports. The impact was less severe than anticipated partly because the tariffs implemented last year were ultimately lower than initially proposed.

A technology surge, characterized by heavy investment in data centers and artificial intelligence, coupled with increasing productivity, also helped bolster the world economy.

“War in the Middle East has halted this momentum,” wrote IMF chief economist Pierre-Olivier Gourinchas in a blog post accompanying the fund’s latest World Economic Outlook report.

The IMF’s forecast is based on the assumption that the Persian Gulf conflict will be brief and that energy prices will climb a “moderate 19%” this year. The situation could deteriorate significantly. Under a “severe scenario” where energy market disruptions extend into next year and central banks must hike interest rates to fight inflation, global growth could fall to 2% in both 2026 and 2027. “Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Gourinchas stated.

The fund modestly lowered its U.S. growth forecast for this year to 2.3%. The 21 European nations using the euro, severely impacted by skyrocketing natural gas prices, are projected to see collective growth of 1.1% this year, a decrease from 1.4% in 2025.

The most severe impacts are expected for heavily indebted, poorer energy-importing countries that lack the fiscal capacity to cushion their economies with increased government spending or tax cuts. For example, the IMF significantly reduced its growth outlook for Sub-Saharan Africa to 4.3% this year, down from a 4.6% expectation in January.

One apparent beneficiary of the conflict is Russia, an energy exporter that gains from higher prices. The IMF improved its forecast for the Russian economy, which has been under heavy sanctions since its 2022 invasion of Ukraine, to a still-modest 1.1%.

Separately, the governor of Ukraine’s National Bank has sought to keep the focus of global economic discussions on Russia’s war against his country. However, in a Monday interview with reporters, Andriy Pyshnyy highlighted how elevated oil prices stemming from the Iran conflict are adversely affecting Ukraine.

Speaking through a translator, he said Ukraine’s annual inflation reached 7.9% in March, significantly exceeding the 7% forecast, largely due to increased fuel costs. He estimated that fuel prices could add between 1.5 and 2.8 percentage points to the annual inflation rate.

Pyshnyy also pointed to potential rises in fertilizer and production costs for an economy striving for price stability amid the ongoing war with Russia, which conducts aerial attacks on Ukraine every three to four minutes on average.

“We are trying to walk on a razor blade,” he said, describing a mission made more difficult by external factors.

The IMF is a lending institution with 191 member nations, focused on fostering economic growth and financial stability while working to reduce global poverty.