The Iran war brought global economic momentum to a halt, the International Monetary Fund said on Tuesday, providing new projections for slower growth and higher inflation.
Why it matters: It is the latest major economic institution to warn about stagflation-like global economic fallout from the war. The conflict upended what was shaping up to be a solid year for the global economy.
- The IMF joins the Organisation for Economic Co-operation and Development, which last month scrapped a planned upgrade to its own forecasts in the wake of the Iran war.
What they're saying: "Prior to the war, we were poised to upgrade our global growth forecast," the IMF says in its latest World Economic Outlook, pointing to a tech investment boom, easing trade tensions and buoyant financial markets. "War in the Middle East will overwhelm these underlying forces."
- War in the Middle East has "halted" economic momentum, IMF chief economist Pierre-Olivier Gourinchas wrote in a blog post.
- "The closing of the Strait of Hormuz and serious damage to critical facilities in a region central to global hydrocarbon supply raise the prospect of a major energy crisis should hostilities continue," Gourinchas said.
By the numbers: The IMF cut its global growth forecast by 0.2 percentage point, to 3.1% for 2026, down from 3.4% last year.
- The IMF also sharply raised its global prices outlook, projecting inflation will rise to 4.4% this year — up 0.6 percentage point from its estimate in January.
The intrigue: The IMF projects the U.S. economy will grow 2.3% this year, the strongest of any major advanced economy, cushioned partly by its status as a net energy exporter.
- That's a slight upgrade of 0.1 percentage point relative to the fund's January forecast.
- But the inflation snapshot is much less rosy: The IMF says U.S. inflation will average 3.2% in 2026 — up 0.6 percentage point from its last projection — before falling to 2.1% in 2027.
Friction point: The IMF notes the "unevenness" of America's relative strength.
- It comes alongside weak jobs growth and a shrinking labor force — a combination that raises questions about the durability of that strength.
Zoom in: The IMF's projections are based on a scenario that assumes the Middle East conflict is relatively short-lived and that oil prices moderate from current levels, as indicated in oil futures pricing.
- Under a more adverse scenario in which the oil price surge is more pronounced, global growth slows to 2.5% and inflation hits 5.4%, the IMF estimates.
- And under the most severe scenario — where energy infrastructure is damaged and disruptions extend into next year — the IMF projects world economic growth stalls with just 2% growth, alongside inflation approaching 6% this year and exceeding it in 2027.
"Clearly, the downside risks are tremendous," Gourinchas wrote in a foreword to the report.
Driving the news: President Trump on Monday imposed a naval blockade on Iran and the Strait of Hormuz, a move to heap pressure on the nation after peace talks over the weekend failed.
- Since the war began, the strait has been effectively closed, with Iran getting to decide who transits through the critical waterway.
- The result of the war and the strait's blockage: Millions of barrels of oil have been taken offline, while crucial inputs that transit through the strait — including fertilizer and helium — have been unable to reach manufacturers worldwide, including the U.S.
The bottom line: The globe faces a harder road than it did after the last energy shock in 2022, with unknown ripple effects that could ultimately reach the U.S.
- "The world economy faces another difficult test," Gourinchas said in the blog post.
