IMF lowers 2026 growth outlook as Iran war hits energy markets
The fund now sees the world economy growing 3% in 2026, citing war-related energy disruption partly offset by AI investment demand.
By Lucas Ferreira · Science & Environment Writer
3 min read
The International Monetary Fund cut its global growth projection for 2026 for the second time this year, pointing to the economic drag from the US-Israel war on Iran. The downgrade matters because energy disruption in the Strait of Hormuz is feeding into forecasts for output, inflation and oil prices.
The IMF said Wednesday that it now expects the world economy to expand 3% in 2026, compared with the 3.1% forecast it issued in April. The Washington-based lender described the shift as a modest slowing, with demand tied to artificial intelligence investment helping to cushion the impact.
The fund projected global growth would improve to 3.4% in 2027. That would still sit just below the 3.5% average growth rate the IMF recorded for 2024 and 2025.
Energy shock weighs on outlook
Petya Koeva Brooks, deputy director of the IMF’s research department, said at a news conference that the outlook is being pulled by two competing forces: the continued economic effects of the Middle East energy shock and a technology-led investment boom. Brooks said events overnight showed the uncertainty around the forecast.
The IMF released the outlook after the United States renewed strikes on Iran on Tuesday following attacks on three commercial ships in the Strait of Hormuz. It came before US forces carried out another round of bombing raids on Iranian targets on Wednesday, according to the timeline reported by Al Jazeera.
The IMF’s forecast assumes the Strait of Hormuz starts to reopen in mid-July and returns to pre-war conditions by March. Before the war, the strait handled about one-fifth of global oil and liquefied natural gas trade, according to the report.
Shipping through the waterway remains restricted because of the threat of Iranian attacks. Maritime intelligence platform Kpler recorded 41 verified transits through the strait on Tuesday, compared with about 130 crossings a day before the war.
Oil rises after renewed strikes
Oil prices rose again after the US resumed attacks on Iran, after having fallen back to pre-war levels last week. US President Donald Trump said Wednesday that he believed the US-Iran ceasefire was “over,” hours before the Pentagon struck Iranian targets for a second straight day.
Brent crude, the main international benchmark, climbed as much as 7% after Trump’s comments and the latest strikes, briefly moving above $79 a barrel. Brent futures for September delivery were at $78.76 a barrel at 02:30 GMT, nearly $8 higher than at the same time a week earlier.
Fabien Yip, a market analyst at IG in Sydney, said in a client note that oil’s earlier return near pre-war prices suggested investors had been assuming a favorable outcome from the US-Iran arrangement. Yip said the renewed escalation showed that assumption was fragile, and that renewed tensions would likely keep a risk premium under oil prices in the near term.
Inflation and country forecasts
The IMF expects global inflation to rise to 4.7% in 2026 from 4.1% in 2025, before easing to 3.9% in 2027. The fund also said the United States is set to post the fastest growth among major advanced economies this year.
The IMF forecast US gross domestic product growth of 2.3%, compared with 0.9% for the eurozone, 1% for the United Kingdom, 1.1% for Canada and 0.6% for Japan. China, which the IMF classifies as an emerging economy, is expected to grow 4.6%.
This story draws on original reporting from Al Jazeera.