-- The International Monetary Fund lowered its global economic growth expectations for 2026 due to the Middle East conflict, cautioning that a prolonged war could drive a further slowdown.
The IMF said Tuesday that it now projects real gross domestic product for the world to grow by 3.1% in 2026, down 0.2 percentage points from its previous forecast in January.
Growth will slow down to 2.5% this year under an adverse scenario with more persistent increases in energy prices. That figure will drop to 2% under a worst-case scenario featuring additional damage to energy infrastructure in the Middle East.
The conflict presents "a significant counterforce" to tailwinds such as technology-related investment and accommodative financial conditions, the IMF said in its latest world economic outlook report.
Global GDP expectations for 2027 were kept unchanged at 3.2%.
The agency raised its base-case global inflation forecasts to 4.4% and 3.7% in 2026 and 2027, respectively, from 3.8% and 3.4% previously projected.
The IMF expects inflation to reach 5.4% this year in an adverse scenario and cross 6% assuming energy supply dislocations extend into next year.
"Downside risks dominate the outlook," the IMF said. "A longer or broader conflict, worsening geopolitical fragmentation, a reassessment of expectations surrounding artificial intelligence-driven productivity, or renewed trade tensions could significantly weaken growth and destabilize financial markets."
Energy prices have shot up since the start of the US-Israel war with Iran, which resulted in the US blockade of maritime traffic entering and leaving Iranian ports. Washington and Tehran agreed to a temporary ceasefire last week, but failed to reach a deal during negotiations in Pakistan over the weekend.
The US and Iran could resume talks later this week, possibly in Pakistan, media outlets reported Tuesday, citing US President Donald Trump.
"Fostering adaptability, maintaining credible policy frameworks, and reinforcing international cooperation are essential to navigating the current shock while preparing for future disruptions in an increasingly uncertain global environment," the IMF said.