IMF Downgrades Global Economic Outlook Citing Iran War Energy Shock

The International Monetary Fund on Wednesday modestly downgraded its outlook for the world economy this year, citing the energy shock caused by the Iran war. But the fallout from the conflict is being partially offset by booming investment in artificial intelligence and other technologies.

The IMF now expects the global economy to expand by a sluggish 3 per cent in 2026, down from 3.5 per cent last year and from the 3.1 per cent it had forecast for this year back in April. The fund expects worldwide growth to rebound to 3.4 per cent next year.

Iran responded to US and Israeli attacks February 28 by shutting down the Strait of Hormuz, through which a fifth of the world’s crude oil and natural gas passes. Energy prices soared, squeezing businesses and consumers. The IMF now expects oil prices to be up nearly 32 per cent this year and for global consumer prices overall to increase 4.7 per cent in 2026. That would be up from 4.1 per cent in 2025 and would mean that two years of progress against inflation have stalled.

“The world economy has weathered the shock from the war better than feared,” Petya Koeva Brooks, deputy director of the IMF’s research department, told reporters on Wednesday.

The economic damage from the energy shock has been limited partly because countries could draw on existing oil stockpiles and because oil-exporting countries outside the Persian Gulf stepped up production.

Countries that produce and export their own energy and that benefit from AI investment are insulated from the war’s economic damage. Among them is the United States.