IMF cuts global growth outlook citing fallout from Iran war, expects higher inflation
Washington: The International Monetary Fund (IMF) has cautioned that the ongoing Iran conflict has disrupted global economic momentum, lowering growth prospects and increasing inflationary pressures worldwide.
In its latest World Economic Outlook, the IMF cut its global growth forecast for 2026 to 3.1 per cent from the 3.3 per cent projected in January, marking a slowdown from 3.4 per cent growth in 2025.
The downgrade reflects the economic fallout from escalating tensions in West Asia, which have triggered a surge in energy prices.
The conflict—sparked by US and Israeli strikes on Iran and Tehran’s retaliation, including disruption of the Strait of Hormuz and attacks on oil refineries and energy infrastructure in neighbouring countries—has driven oil and gas prices sharply higher.
As a result, the IMF raised its global inflation forecast for 2026 to 4.4 per cent, compared with 4.1 per cent in 2025 and 3.8 per cent estimated earlier.
IMF Chief Economist Pierre-Olivier Gourinchas said the war has halted the global economy’s earlier resilience, which had been supported by strong investment in artificial intelligence, data centres and productivity gains. The impact of protectionist trade policies under Donald Trump had also proved less severe than initially expected.
The IMF’s baseline assumes the conflict will be short-lived, with energy prices rising by around 19 per cent this year.
However, it warned of a “severe scenario” in which prolonged energy shocks and tighter monetary policy could drag global growth down to 2 per cent in both 2026 and 2027. “Despite a temporary ceasefire, downside risks remain elevated,” Gourinchas noted.
Regionally, the IMF slightly lowered its US growth forecast to 2.3 per cent.
The euro area is expected to grow 1.1 per cent, down from 1.4 per cent in 2025, as soaring natural gas prices weigh on activity.
The impact is expected to be most severe for energy-importing developing economies with limited fiscal space. The IMF cut its growth forecast for Sub-Saharan Africa to 4.3 per cent from 4.6 per cent projected earlier.
In contrast, energy exporters such as Russia stand to benefit from higher prices, with the IMF raising its growth forecast to 1.1 per cent despite ongoing sanctions following the Ukraine conflict.
Meanwhile, Andriy Pyshnyy, Governor of the National Bank of Ukraine, said rising fuel costs linked to the Iran conflict are fuelling inflationary pressures in his country.
Ukraine’s annual inflation rose to 7.9 per cent in March, above expectations, largely due to higher energy prices.
Pyshnyy warned that fuel costs alone could add 1.5 to 2.8 percentage points to inflation, alongside rising fertiliser and production expenses. With Ukraine continuing to face frequent attacks in its ongoing conflict with Russia, he described the economic situation as highly fragile, saying policymakers are “walking on a razor blade” amid mounting external pressures.
