IMF Cuts Global Growth Forecast to 3.1% for 2026 Amid Middle East Conflict
The International Monetary Fund revised down its global growth projections due to the outbreak of war in the Middle East. Global GDP is now expected to grow 3.1% in 2026 and 3.2% in 2027, well below pre-pandemic averages.
War Disrupts Economic Recovery
The global economy is again disrupted, this time with the outbreak of war in the Middle East. Rising commodity prices, firmer inflation expectations, and tighter financial conditions are testing the recent resilience. Under the assumption of a limited conflict, global growth is projected at 3.1 percent in 2026 and 3.2 percent in 2027, below recent outcomes and well under prepandemic averages.
Inflation Concerns Return
Global inflation is expected to tick up in 2026 and resume its decline in 2027. Global headline inflation is projected to rise modestly in 2026 before resuming its decline in 2027. Pressures are concentrated in emerging market and developing economies, especially commodity importers with preexisting vulnerabilities. Slowdown in growth and increase in inflation are expected to be particularly pronounced in emerging market and developing economies.
Defense Spending Impact
Defense spending is rising amid intensifying geopolitical tensions. This chapter finds that large defense spending booms have become more frequent, especially in emerging market and developing economies. In a typical boom, defense outlays increase by about 2.7 percentage points of GDP over two-and-a-half years, with roughly two-thirds financed through deficit.
Downside Risks Dominate
Risks are decisively on the downside. A prolonged conflict, deeper geopolitical fragmentation, disappointment over AI-driven productivity, or renewed trade tensions could weaken growth and unsettle markets.