IMF Cuts 2026 Growth Forecast Amid Middle East War

The IMF cut its 2026 global growth forecast to 3.1 percent, down from 3.3 percent projected in January, citing the Middle East conflict that began February 28 with US-Israeli strikes on Iran as the primary driver. Iran's near-blockade of the Strait of Hormuz and a US naval blockade around Iranian ports have pushed oil, gas, and fertilizer prices sharply higher, lifting the IMF's 2026 inflation forecast to 4.4 percent, 0.6 percentage points above January's estimate. IMF chief economist Pierre-Olivier Gourinchas said the fund had planned to upgrade 2026 growth to 3.4 percent before the conflict erupted. The current baseline assumes a short-lived disruption; if energy prices remain elevated, growth could fall to 2.5 percent or as low as 2.0 percent. The transmission is uneven: emerging market and developing economies face roughly twice the growth hit of advanced economies, and Middle East and Central Asia projections were slashed by half to 1.9 percent. Saudi Arabia's growth outlook dropped 1.4 percentage points to 3.1 percent. The US, a net energy beneficiary at the margin, still sees 2.3 percent growth, while China cools to 4.4 percent and the euro area slips to 1.1 percent. The IMF's secondary concern is inflation persistence: if firms move quickly to restore margins, expectations could de-anchor and force central banks to raise rates into a supply shock, a stagflationary bind.