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2026 global growth to be 3.1% under ‘limited’ Iran war: IMF
It projected that global growth will stabilise at this level in the medium term, below its historical (2000–19) average of 3.7 per cent.
Assuming that the Iran war will have limited duration, intensity and scope, and the disruptions will fade by mid-2026, global growth is projected to be 3.1 per cent in 2026 and 3.2 per cent in 2027, according to the IMF’s World Economic Outlook.
Global headline inflation is expected to rise to 4.4 per cent in 2026 and decline to 3.7 per cent in 2027, marking upward revisions for both years.
The forecast for 2026 is revised downward by 0.2 percentage point and that for 2027 is unchanged, compared with those in the January 2026 WEO Update.
Global headline inflation is expected to increase to 4.4 per cent in 2026 and decline to 3.7 per cent in 2027, marking upward revisions for both years.
Under an adverse scenario with larger and more persistent increases in energy prices, global growth would slow further to 2.5 per cent in 2026, and inflation would reach 5.4 per cent.
Under a more severe scenario in which there is more damage to energy infrastructure in the conflict region, the impact would be even larger: Global growth would be cut to only about 2 per cent in 2026, while headline inflation would be just above 6 per cent by 2027. The impact on emerging market and developing economies would be almost twice that on advanced economies under such a scenario.
Downside risks dominate the outlook. A longer or broader conflict, worsening geopolitical fragmentation, a reassessment of expectations surrounding artificial intelligence (AI)-driven productivity, or renewed trade tensions could significantly weaken growth and destabilise financial markets.
Elevated public debt and eroding institutional credibility further heighten vulnerabilities. At the same time, activity could be lifted if productivity gains from AI materialise more rapidly or trade tensions ease on a sustained basis.
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 report noted.
Scaling up of defence spending prompted by a rise in geopolitical tensions could boost economic activity in the short term, but also bring about inflationary pressures, weaken fiscal and external sustainability, and risk crowding out social spending, which could in turn ignite discontent and social unrest.
The report recommended that governments rebuild buffers for future shocks by mobilising revenues, reprioritising expenditures, improving spending efficiency and managing windfalls prudently.
A second priority is addressing domestic imbalances, especially when doing so also helps reduce excessive external imbalances. Actions aimed at removing domestic distortions—through fiscal, structural, and industrial policies—can simultaneously narrow external imbalances while enhancing global output, added the report.
Fibre2Fashion News Desk (DS)