The fallout from the Middle East conflict sparked by the war with Iran has “sharply darkened” the global economic outlook, the International Monetary Fund said on Tuesday, warning of lower growth compared to 2025.
The IMF lowered its global growth forecast to 3.1 percent in 2026 from the 3.3 percent it had forecast in January. This is also down from the 3.4 percent expansion seen last year.
That modest 0.2 percent cut is based on the assumption of “a short-lived conflict,” IMF economic adviser Pierre-Olivier Gourinchas wrote in the report.
“The global outlook has abruptly darkened following the outbreak of war in the Middle East” more than a month ago, he said, which “interrupted what had been a steady growth trajectory” and upended a planned upgrade to the IMF’s forecasts.
“The duration and scale of the conflict and the time it will take for energy production and transit to normalize after the end of hostilities will determine the final size of the shock to the global economy,” Gourinchas added.
Although a fragile two-week ceasefire remains in place, negotiations to end the war have yet to result in a peace deal, raising fears that attacks could resume.
The US and Israeli attacks on Iran (and Tehran’s closure of the Strait of Hormuz and retaliatory attacks on oil refineries and other energy infrastructure in neighboring countries) have sent oil and gas prices sharply higher around the world.
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As a result, the IMF raised its global inflation expectation this year to 4.4 percent from 4.1 percent in 2025 and from the 3.8 percent it had forecast for this year in January.
The IMF’s sour outlook comes less than two weeks after Deloitte Canada also lowered its growth forecast for the Canadian economy to 1.2 per cent by 2026, down from the 1.5 per cent estimate in January, as well as last year’s 1.7 per cent increase.
The IMF’s forecast for Canada is more optimistic, predicting 1.5 per cent growth this year, just 0.1 percentage point lower than its January forecast. Both the January report and Tuesday’s update predict a 1.9 percent expansion in 2027.
The U.S. economy is still expected to grow 2.3 percent in 2026, which the IMF says is due to last year’s fiscal policies and interest rate cuts.
That forecast was also lowered 0.1 percentage point from January, reflecting what the report calls a “small net negative effect” of the war with Iran, given that the United States exports more oil and gas than it brings in from foreign markets compared to other nations.
Still, the IMF notes that inflation remains above the US Federal Reserve’s two percent target, sitting above three percent in the most recent data.
“I think they probably overreacted, but we’ll see,” U.S. Treasury Secretary Scott Bessent told reporters about the IMF report.
He said he was confident the United States would experience higher prices very quickly, unlike countries that were implementing subsidies that could increase borrowing or lengthen the duration of inflationary shocks.
The IMF report was more pessimistic, lowering its forecast for emerging markets and developing economies to 3.9 percent from its 4.2 percent view in January.
The report cited higher food and energy prices that will have the greatest impact on those countries, which include much of Asia, Latin America and Africa, and even large economies such as China and India.
One winner emerging from the Middle East conflict is Russia, an energy exporter that will benefit from higher prices. The IMF raised its forecast for the Russian economy, hit hard by sanctions following the invasion of Ukraine in 2022, to a still modest 1.1 percent from 0.8 percent in January.
Gourinchas said at a news conference Tuesday that the 3.1 percent global growth projection is a baseline forecast that is “not yet” irrelevant, but warned that could change if the war in the Middle East drags on.
“I would say we are somewhere between the baseline scenario and the adverse scenario” of weaker global growth of 2.5 percent in 2026, he said.
“And of course, every day that passes and every day that we have more energy disruptions, we get closer to the adverse scenario.”
The IMF is a 191-nation lending organization that works to promote economic growth and financial stability and reduce global poverty.
– with files from The Associated Press and Reuters
© 2026 Global News, a division of Corus Entertainment Inc.
