Global growth is projected to slow to 3.1 per cent in 2026 due to the Middle East war, the International Monetary Fund 9IMF) has said.
The Fund projects a slight rise to 3.2 per cent in 2027, assuming the conflict does not escalate, but warns risks remain tilted to the downside.
Mr Pierre-Olivier Gourinchas, Director of the IMF Research Department, said at the April 2026 World Economic Outlook (WEO) press briefing during the Spring Meetings on Tuesday 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 US tariffs, fiscal support in some countries, favourable financial conditions, and a tech boom.
“Despite downside risks, this momentum was expected to carry into 2026, and we were looking to lift up our global growth forecast. A war in the Middle East has halted this momentum,” he said.
Mr Gourinchas, who is also the IMF Economic Counsellor, said the IMF had observed trade disruptions and heightened energy market volatility, with governments diverting resources into defence spending, undermining investment in growth-supportive sectors due to the conflict.
The Fund also observed 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 per cent this year, a downgrade from January forecast, and headline inflation rises to 4.4 per cent,” 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 per cent this year, with inflation rising to 5.4 per cent.
In a severe scenario, he said, energy supply disruptions could extend into next year, worsening macroeconomic instability.
Global growth would then fall to two per cent in both years, while inflation would exceed six per cent.
Mr Gourinchas said the development could complicate monetary policy decisions in both advanced and emerging economies as governments face policy trade-offs between increased defence spending and sustaining social and economic investments.
He said 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.”
“But they must be attentive to risks and communicate clearly their readiness to act decisively to maintain price stability. In most cases, exchange rates should be allowed to adjust, allowing central banks to focus on their mandates,” he recommended.
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 as inflation rose.
“If financial conditions tighten sharply, as in our 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.
“We should keep strengthening global cooperation with the right policies, including a swift cessation of hostilities and reopening of the Strait of Hormuz,” he advised.
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