Washington: Global growth is projected to slow to 3.1 percent in 2026 due to the Middle East war, the International Monetary Fund (IMF) has said. The Fund projects a slight rise to 3.2 percent in 2027, assuming the conflict does not escalate, but warns risks remain tilted to the downside.
According to Ghana News Agency, Mr. Pierre-Olivier Gourinchas, Director of the IMF Research Department, stated at the April 2026 World Economic Outlook (WEO) press briefing during the Spring Meetings that the duration and scope of the conflict would determine the depth of the slowdown. Despite trade disruptions and policy uncertainty, last year ended on an upbeat note. The private sector adapted to a changing business environment, helped by lower than announced U.S. tariffs, fiscal support in some countries, favorable financial conditions, and a tech boom.
Mr. Gourinchas, who is also the IMF Economic Counsellor, highlighted that the IMF observed trade disruptions and heightened energy market volatility, with governments diverting resources into defense spending, undermining investment in growth-supportive sectors due to the conflict. The Fund also noted disruptions to shipping routes and rising insurance costs for vessels navigating conflict-prone waters, adding to inflationary pressures, particularly in energy-importing countries.
"Global growth falls to 3.1 percent this year, a downgrade from January forecast, and headline inflation rises to 4.4 percent," he said, adding that the adverse scenario assumed further disruption, leading to higher energy prices, rising inflation expectations, and tighter financial conditions throughout 2026. Mr. Gourinchas explained that growth is projected to slow to 2.5 percent this year, with inflation rising to 5.4 percent. In a severe scenario, he said, energy supply disruptions could extend into next year, worsening macroeconomic instability.
Global growth would then fall to two percent in both years, while inflation would exceed six percent. Mr. Gourinchas noted the development could complicate monetary policy decisions in both advanced and emerging economies as governments face policy trade-offs between increased defense spending and sustaining social and economic investments.
He emphasized that no central bank could influence global energy prices on its own, noting that, "provided inflation expectations remain well anchored, central banks can afford to wait and watch for now." He recommended that central banks remain attentive to risks and communicate clearly their readiness to act decisively to maintain price stability, allowing exchange rates to adjust and focusing on their mandates.
On the fiscal side, Mr. Gourinchas called for targeted and temporary measures, consistent with medium-term plans to rebuild fiscal buffers and avoid stimulating demand where inflation was rising. He advised that if financial conditions tighten sharply, as in the severe scenario and global activity deteriorates markedly, monetary and fiscal policy should be ready to pivot to support the economy and safeguard the financial system alongside appropriate financial and liquidity policies.
He concluded by advocating for strengthening global cooperation with the right policies, including a swift cessation of hostilities and reopening of the Strait of Hormuz.