IMF cuts 2026 global growth forecast as Iran war weighs on outlook

The IMF said in its July World Economic Outlook update that the global economy would grow 3.0% in 2026, down from its April forecast of 3.1%, before rebounding to 3.4% in 2027. The fund said the slowdown reflected the impact of the Middle East war, partly offset by faster demand-driven momentum in the global technology cycle linked to AI.

Global inflation is expected to rise to 4.7% this year from 4.1% in 2025, before easing to 3.9% in 2027, the IMF said. The fund said higher energy and food prices were the main drivers of the increase.

The latest downgrade came as renewed U.S. strikes on Iran and attacks on commercial vessels in the Strait of Hormuz added fresh uncertainty to the outlook. The IMF’s forecast assumes the strait begins reopening in mid-July and gradually returns to prewar conditions by March 2027.

Petya Koeva Brooks, deputy director of the IMF’s research department, said the global outlook was being shaped by opposing forces: the drag from the Middle East energy shock and a technology-led investment boom. IMF officials said the world economy had so far absorbed the shock better than feared, but warned that renewed escalation could revive commodity-price volatility and tighten financial conditions.

Shipping through the Strait of Hormuz, a key route for global energy supplies, remains sharply constrained. Reuters reported that tanker traffic through the strait was near a standstill on Thursday, with only two tankers recorded in the early hours, while daily traffic in recent weeks remained far below the prewar average of 125 to 140 sailings.

Oil prices rose after the latest flare-up. Brent crude climbed toward $80 a barrel after U.S. strikes and renewed threats to shipping, reversing a recent decline toward prewar levels.

The IMF forecast the United States would grow 2.3% in 2026, the fastest rate among major advanced economies listed in the update. The euro area is expected to grow 0.9%, the United Kingdom 1.0%, Canada 1.1% and Japan 0.6%. China is forecast to expand 4.6%, while India is projected to grow 6.4%.

The Middle East and Central Asia region was the most heavily affected in the IMF update. The fund cut its 2026 growth forecast for the region by 1.2 percentage points to 0.7%, while raising its 2027 forecast to 6.5%, reflecting expectations of a rebound if disruption around Hormuz eases.