The International Monetary Fund (IMF) has lowered its global economic growth forecast for 2026 to 3.0 per cent, citing the economic impact of the ongoing conflict in the Middle East despite continued momentum in artificial intelligence-driven investment.
In its latest World Economic Outlook update released on Wednesday, the IMF reduced its growth projection from the 3.1 per cent forecast issued in April, marking the second downward revision this year. The new estimate also reflects slower growth than recorded in 2025.
The Fund also raised its global inflation forecast to 4.7 per cent for 2026, attributing the increase largely to disruptions caused by the conflict and higher energy prices.
According to the IMF, the rapid expansion of artificial intelligence has provided some support for global demand, helping to cushion the broader economic impact of the war.
Deniz Igan, Division Chief at the IMF’s Research Department, said the Fund’s projections remain broadly unchanged over the next two years, describing the expected recovery as “V-shaped.”
She noted that prolonged disruptions linked to the conflict involving Iran and elevated energy prices would weigh more heavily on the global economy this year.
The IMF said energy-exporting countries outside the conflict zone are benefiting from improved trade conditions, while economies participating in the technology-driven expansion are recording stronger growth despite being net energy importers.
Conversely, it warned that energy-importing economies with limited exposure to the global technology value chain are expected to experience weaker economic activity.
The report follows months of conflict triggered by US-Israeli strikes on Iran, which prompted Tehran to disrupt shipping through the Strait of Hormuz, a critical route for global energy supplies. The disruption drove oil prices higher before a temporary ceasefire allowed energy shipments to resume.
Although the IMF expects shipping through the Strait of Hormuz to normalise by 2027, it warned that renewed hostilities could trigger further commodity price volatility, disrupt supply chains, tighten financial conditions and increase inflationary pressures.
Regionally, the IMF maintained its forecast for US economic growth at 2.3 per cent in 2026 but downgraded growth in the Middle East and Central Asia by 1.2 percentage points to 0.7 per cent, citing the prolonged disruption of energy exports.
The euro area is now projected to grow by 0.9 per cent, while France’s growth forecast was cut to 0.6 per cent.
China, however, received a slight upward revision, with the world’s second-largest economy now expected to grow by 4.6 per cent this year.
The IMF also highlighted the resilience of major exporters of AI-related hardware, including Taiwan, South Korea, Thailand and Malaysia, which have maintained solid growth despite the global uncertainty.
While inflation is expected to rise this year, Igan said the increase represents only a temporary interruption to the broader disinflation trend rather than a reversal.
