The global energy shock, caused by the Iran war, has found its mention in the International Monetary Fund’s latest growth forecast, with the global monetary body cutting its 2026 growth forecast for the second time this year.
The global economy is now expected to grow 3% in 2026, down from an April forecast of 3.1%, a modest slowdown partly offset by artificial intelligence (AI)-driven demand. Growth is projected to rebound to 3.4% in 2027, still below the 3.5% average recorded across 2024 and 2025. Global headline inflation is expected to reach 4.7% this year, up from 4.1% in 2025, before easing to 3.9% in 2027.
“The global outlook is being shaped by two powerful forces pulling in opposite directions: the lingering effects of the energy shock from the war in the Middle East and a technology-driven investment boom,” said Petya Koeva Brooks, deputy director of the IMF’s research department.
The downgrade came after the United States renewed strikes on Iran following attacks on three commercial ships in the Strait of Hormuz, days before a second round of American bombing raids on Iranian targets.
President Donald Trump said he believed the ceasefire between Washington and Tehran was over, a remark that sent Brent crude up as much as 7%, briefly topping USD 79 a barrel. The IMF’s forecast assumes shipping through the Strait of Hormuz begins normalising in mid-July, with prewar conditions restored by March 2027.
Energy prices are now running about 25% above pre-war levels, with the fund pencilling in an average of USD 89 a barrel for 2026.
Deniz Igan, chief of the IMF’s World Economic Studies division, said the global economy had proven more resilient than expected in April, helped by the release of strategic oil reserves and improved energy efficiency, though she cautioned that a collapse of the ceasefire could catch the world economy in a weaker position than before.
The outlook varies sharply by region. The United States is forecast to grow 2.3%, the fastest among major advanced economies, supported by fiscal policy and continued technology-related investment.
The eurozone forecast was trimmed to 0.9%, Japan to 0.6% and Canada to 1.1%, while Brazil’s outlook was raised to 2.4%. China is expected to grow 4.6%, up from April’s 4.4% estimate, and India was downgraded slightly to 6.4%.
Countries at the centre of the AI hardware supply chain fared best. Taiwan, South Korea, Thailand and Malaysia all posted stronger-than-expected results, with South Korea’s annualised first-quarter growth reaching 7.5%, nearly four times the fund’s earlier estimate, despite its heavy reliance on Middle Eastern energy imports.
The Middle East and Central Asia region bore the brunt of the downgrade, with growth cut to 0.7% for 2026 before an expected rebound to 6.5% in 2027. Saudi Arabia’s forecast was reduced by 1.4 percentage points to 1.7%.
The IMF’s update follows a starker warning from the World Bank, which cut its own 2026 global growth forecast to 2.5%, describing the slowdown as the worst hit to the global economy since the Covid-19 pandemic.
The fund urged policymakers to keep monetary policy focused on restoring price stability and to avoid broad-based subsidies or price controls that could distort markets.
Talking about the Iran war, the recent escalation of hostilities between the Washington and Tehran could upend the International Energy Agency’s forecast of a significant oil market surplus in 2027, it said on Friday. While global supply jumped in June with the reopening of the strategically important Strait of Hormuz, supply levels haven’t been able to reach the pre-war levels.
The effective closure of the maritime chokehold had taken out as much as 14 million barrels per day of crude flows during the peak of the largest oil supply crisis in history.
As per the, IEA ‘s data, global oil supply rose by 4.1 million bpd in June, but remained 9.4 million bpd below pre-war levels. While the energy watchdog sees supply expanding by 7.5 million bpd in 2027 after a 3.7 million bpd contraction in 2026, realisation of the estimates will still be dependent upon the improvement in Hormuz transits.
“An escalation in hostilities on 7-8 July, however, clouds the outlook and could upend the forecast that sees the market flipping to a surplus next year,” IEA said, adding that a lasting peace agreement is a “must” for oil markets to normalise.
The IEA’s 2027 forecasts imply that supply will outweigh demand by 4.62 million bpd in 2027 from 2026’s deficit of 860,000 bpd, provided producers can restart fields and refiners can resume normal product shipments.
The Paris-based agency also sees global oil demand falling by 1 million bpd this year, before rebounding to rise two million bpd in 2027. In the nearer term, it sees the peak summer fuel demand season lifting consumption by around eight million bpd when compared with May’s low point at the peak of the Hormuz crisis.