News · Macro · Global
Iran War Hurt the World Economy Less Than Feared: IMF
The International Monetary Fund held its medium-term outlook steady in July but raised its 2026 inflation forecast to 4.7 percent. The fall in price growth that began in early 2024, it said, has stalled.
For information only. Not investment advice. Disclaimer · Special coverage: IMF–World Bank Annual Meetings, Bangkok
AI-generated summary, reviewed by the editor.
- The IMF projects global growth of 3 percent in 2026 and 3.4 percent in 2027, little changed from April, and raised 2026 headline inflation to 4.7 percent.
- The fund assumes petroleum averages $89.27 a barrel this year, about 9 percent above its April assumption, based on futures as of June 10.
- Growth in the Middle East and Central Asia falls from 3.7 percent in 2025 to 0.7 percent in 2026; risks include renewed conflict, a tech-share repricing and tariffs.
It restates the article and adds no new facts. How we use AI
The world economy has absorbed the Middle East war better than feared, the International Monetary Fund said in July, but inflation has stopped falling.
The fund projects global growth of 3 percent this year and 3.4 percent in 2027, little changed from its April forecast. It raised its estimate for global headline inflation in 2026 to 4.7 percent. Core inflation, which strips out food and energy, is broadly unchanged.
"We are projecting global growth of 3% in 2026 and 3.4% in 27, broadly unchanged from April on a cumulative basis. In effect, we expect a V-shaped recovery, weaker growth this year relative to our pre-war forecast, followed by a rebound next year."Petya Koeva Brooks, deputy director, IMF Research Department
The arithmetic is less tidy than the shape. Before the conflict, the fund had forecast 3.4 percent growth for 2026. The new figure is 0.4 percentage points lower. Global growth was 3.5 percent in 2025, so the rebound next year lands a shade below the pace the world had before the war.
Annual real GDP growth, percent
View data
| Year | Growth, % |
|---|---|
| 2025 | 3.5 |
| 2026 (projection) | 3.0 |
| 2027 (projection) | 3.4 |
What kept oil in check
The war closed the Strait of Hormuz and damaged hydrocarbon facilities, the fund said in April, raising the risk of a major energy crisis. That did not fully happen. The world economy "has weathered the shock from the war better than feared so far," Ms. Koeva Brooks said, "with limited evidence of second round effects."
"A large spike in oil prices was avoided," she said. She credited inventory drawdowns, expanded production outside the Gulf and actions to soften oil demand. A steady rise in the share of renewable energy, and lower energy intensity than a few years ago, also left many economies more resilient, she said. Financial conditions tightened sharply in early April, then eased, and she described them as supportive by historical standards.
Oil still costs more. The fund assumes petroleum prices average $89.27 a barrel this year, about 9 percent above the $82 it assumed in April, and $78.70 in 2027. Those assumptions rest on futures prices as of June 10. When the update was published, energy prices stood roughly 25 percent above prewar levels, though ceasefires and a memorandum of understanding between Iran and the United States had cooled them from April peaks.
Average petroleum spot price, dollars a barrel
View data
| Assumption | $ a barrel |
|---|---|
| 2026, April reference | 82.00 |
| 2026, July | 89.27 |
| 2027, July | 78.70 |
Where prices are stuck
Inflation is the weaker half of the report. The fund now expects global headline inflation of 4.7 percent in 2026, up 0.3 percentage points from April and above the 4.1 percent recorded in 2025. It sees 3.9 percent in 2027. Emerging and developing economies run hotter, at 5.8 percent this year, than advanced economies, at 3.0 percent.
"Put simply, the disinflation trend that has been in place since early 2024 has stalled."Petya Koeva Brooks
Core inflation will be slower still to come down. The fund expects it to return to target by mid-2027 in the United Kingdom, by the end of 2027 in the United States and Japan, and in 2028 in the euro area.
Consumer prices, annual percent change
View data
| Group | 2025 | 2026 | 2027 |
|---|---|---|---|
| World | 4.1 | 4.7 | 3.9 |
| Advanced economies | 2.5 | 3.0 | 2.4 |
| Emerging and developing | 5.2 | 5.8 | 4.8 |
The fund's advice is conventional: keep the focus on price stability, unwind energy-related support as the shock fades and rebuild fiscal room given elevated debt. It said central banks may need to revisit forward guidance. The risk it names is oil. Higher prices could unanchor inflation expectations.
Who took the hit
The damage is concentrated. Growth in the Middle East and Central Asia region falls from 3.7 percent in 2025 to 0.7 percent in 2026, before a projected rebound to 6.5 percent in 2027. Iraq, Kuwait and Qatar face sharp contractions this year. Iran's economy shrinks 5.4 percent. Saudi Arabia is projected to grow 1.7 percent.
Among the large economies, the changes are small. The United States is projected to grow 2.3 percent this year, unrevised from April. The fund cut the euro area by 0.2 percentage points to 0.9 percent. It raised China by 0.2 points to 4.6 percent and the United Kingdom by the same amount to 1.0 percent. India, reported on a fiscal-year basis, is at 6.4 percent, down 0.1.
Real GDP growth, percent
View data
| Economy | 2025 | 2026 | 2027 |
|---|---|---|---|
| India* | 7.7 | 6.4 | 6.7 |
| China | 5.0 | 4.6 | 4.1 |
| United States | 2.1 | 2.3 | 2.2 |
| United Kingdom | 1.4 | 1.0 | 1.3 |
| Euro area | 1.4 | 0.9 | 1.2 |
| Japan | 1.1 | 0.6 | 0.7 |
Revision to 2026 growth forecast, percentage points
View data
| Economy | Revision, pp |
|---|---|
| United Kingdom | +0.2 |
| China | +0.2 |
| United States | 0.0 |
| World | −0.1 |
| Advanced economies | −0.1 |
| Japan | −0.1 |
| Emerging and developing | −0.1 |
| India | −0.1 |
| Euro area | −0.2 |
Technology is doing some of the offsetting. The fund treats demand for artificial intelligence as a positive shock that partly cancels the war's drag on supply. The four largest net exporters of AI hardware (Taiwan Province of China, Korea, Thailand and Malaysia) surprised to the upside by an average of 4.4 percentage points in early 2026. Korea's 2026 forecast rose 0.7 points to 2.6 percent. Malaysia is projected at 4.7 percent. The baseline assumes that cycle cools, with no extra lift to productivity.
The risks are specific. Renewed conflict could revive commodity volatility, with inventories near multiyear lows. A reassessment of AI profitability could set off a sharp repricing of technology shares. New tariffs and nontariff restrictions could weigh on growth and prices. High public debt in several major economies leaves less room to respond.
The fund's baseline assumes the reopening of the Strait of Hormuz begins in mid-July, with conditions returning to prewar norms by March 2027. It published that assumption on July 8.
Sources
- IMF, World Economic Outlook Update, July 2026
- IMF, July 2026 update, full text (Table 1, oil assumptions, risks)
- IMF, press briefing transcript, July 8, 2026
- IMF, "War Darkens Global Economic Outlook and Reshapes Policy Priorities," April 14, 2026
- IMF press release and briefing transcript supplied by the author (file dated October 13, 2026)
Comments
Sign in with LinkedIn to join the discussion. Your LinkedIn name and photo appear publicly beside your comment. Please keep it civil and on topic.