The International Monetary Fund said Thursday that it expects to lower its growth projections for the global economy this year due to the war in the Middle East.
IMF Managing Director Kristalina Georgieva told a group of finance ministers and policymakers gathering in Washington, D.C., that damage to infrastructure and disruptions in supply chains resulting from the war against Iran will mean that growth falls short of the group’s estimates released earlier this year. In January, the IMF said it expects the global economy to grow at a 3.3% rate in 2026, and 3.2% in 2027, driven in part by significant investments in artificial intelligence.
“Even in a best case, there will be no neat and clean return to the status quo ante,” Georgieva said. “We don’t truly know what the future holds for transits through the Strait of Hormuz or, for that matter, for the recovery of regional air traffic.”
Georgieva warned that economic growth will be slower “even if the new peace is durable.”
Analysts at Oxford Economics echoed that view Thursday, saying that higher energy prices will be a factor for some time, negatively affecting Asia’s economies in particular. “Even if the cease-fire is durable, it will likely take some time for oil prices to return anywhere near pre-war levels,” economist Nancy Vanden Houten said.
Lower US growth last year: Separately, the U.S. Commerce Department announced Thursday that domestic economic growth was weaker at the end of 2025 than originally estimated. Analysts initially pegged the growth rate in the fourth quarter at 1.4%, but that was revised down to 0.7% in the second estimate and now 0.5% in the third. For 2025 overall, the economy grew 2.1%, below the 2.8% rate in 2024 and 2.9% in 2023.
The department said growth in the fourth quarter was driven largely by consumer spending, while government spending and exports detracted from it. Government spending was reduced during the 43-day shutdown that started in October. Private investment was lower than first estimated, as well.
Inflation persists: Other data released by Commerce on Thursday show that inflation continues to run above the Federal Reserve’s 2% target level — and that’s before the Iran war began. The personal consumption expenditures price index rose 0.4% on a monthly basis in February, a tenth of a percentage point higher than in January, while the annual rate held steady at 2.8%.
Core PCE, which ignores volatile food and fuel prices and is seen by the Fed as a key measure of inflation, rose 0.4% on a monthly basis and 3.0% annually.
We’ll get another look at inflation data tomorrow when the March Consumer Price Index report is released. Economists expect to see a big jump in inflation due to the Iran war, with some predicting CPI above 3% in March and perhaps above 4% in April.
“We're going to be paying the price for this through much of the year,” Moody's Analytics Chief Economist Mark Zandi told CBS News. “We should see a bit of a bump in the cost of airline tickets. Grocery prices will probably be a bit higher. Obviously, that goes to transporting food from the port or the farm to the store shelf.”