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IMF cuts 2026 global growth forecast to 3.0% amid West Asia conflict risks.
Inflation forecast rises to 4.7% as energy prices remain around 25% higher.
India, China and South Korea outperform despite weaker global growth outlook.
The International Monetary Fund has nudged its 2026 global growth projection down to 3.0%, warning that the West Asia conflict, trade fragmentation and a potential correction in AI market expectations continue to cloud the outlook, even as the world economy has so far avoided a sharper downturn.
The Washington-based lender said demand for artificial intelligence and related technologies had helped cushion the blow from a sharp drop in energy supplies caused by the war, which began on 28 February. Growth is expected to rebound to 3.4 per cent in 2027, though that remains below the 3.5 per cent average recorded in 2024 and 2025. The latest forecast marks a slight downgrade from the 3.1 per cent projection issued in April.
The inflation picture has worsened. The IMF raised its 2026 headline inflation forecast by 0.3 percentage points to 4.7%, with a further decline to 3.9% expected in 2027. Energy prices are running roughly 25% above pre-war levels and are expected to stay elevated. The updated projections, locked in on 10 June, assume the Strait of Hormuz will begin to reopen in mid-July and return to pre-war traffic conditions by March 2027, with an average oil price of 89 dollars a barrel.
"The world economy has weathered the shock from the war better than feared so far, with limited evidence of second-round effects," said Petya Koeva Brooks, deputy director of the IMF's research department, describing the expected trajectory as a V-shaped recovery.
Country-level divergence
The IMF left its US growth forecast for 2026 unchanged at 2.3%, while trimming the euro area's projection to 0.9 per cent from 1.1% in April. Japan's 2026 forecast edged down by 0.1 percentage point to 0.6%. South Korea received a notable upgrade of 0.7 percentage points to 2.6%, driven by strong AI hardware exports. China's forecast was raised to 4.6% for 2026 after a strong first quarter, while India saw a marginal downgrade to 6.4% for 2026, though its 2027 outlook was lifted to 6.7%. West Asia and Central Asia region, the hardest hit by the conflict, had its 2026 forecast cut by 1.2 percentage points to just 0.7%, before an expected sharp rebound to 6.5% in 2027.
Global trade growth is projected to slow to 3.5% in 2026, down from 5% in 2025, a year marked by heavy front-loading ahead of US tariffs, before recovering to 4.3% in 2027.
IMF officials cautioned that renewed conflict in the region posed significant downside risks.
