We told you last week that the International Monetary Fund warned that it expected to cut its growth projections for the global economy this year as the war with Iran causes widespread disruption. Those new projections are out today in a report titled “Global Economy in the Shadow of War,” and they do indeed forecast a slower rate of growth and higher inflation, with additional downside risk if the war drags on.
“Assuming that the conflict remains limited in duration and scope, global growth is projected to slow to 3.1 percent in 2026 and 3.2 percent in 2027,” the IMF said. The forecast for 2026 was cut by 0.2 percentage points and represents a decline from 3.4% growth last year.
“Absent the war, global growth would have been revised upward,” the new report notes. “Hence, the downward revision for 2026 largely reflects the disruptions from the conflict in the Middle East, partly offset by carryover from recent strong data and reduced tariff rates.”
Global inflation is now projected to rise to 4.4% this year, compared with a projection of 3.8% included in the IMF’s January outlook.
“Downside risks dominate the outlook”: A longer war would mean even slower growth and higher prices. “Under an adverse scenario with larger and more persistent increases in energy prices, global growth would slow further to 2.5 percent in 2026, and inflation would reach 5.4 percent,” the IMF warns. “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 percent in 2026, while headline inflation would be just above 6 percent by 2027. The impact on emerging-market and developing economies would be almost twice that on advanced economies.”
The outlook for the United States: U.S. gross domestic product is expected to grow 2.3%, up from 2.1% in 2025. That’s the strongest of any large, advanced economy — but slightly less than the 2.4% growth forecast back in January. Inflation is projected to average 3.2% for 2026, up from 2.8% last year — and up sharply from the 2.5% forecast in January. The report does see U.S. inflation falling back to 2.1% in 2027.
The bottom line: “After withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East,” the IMF says, becoming the latest organization to warn of the economic fallout from the Iran war — and President Trump’s policies more broadly.