On Tuesday, April 14th, the International Monetary Fund (IMF) released a report stating that the ongoing conflict in the Middle East is having a significant impact on the steady growth of the global economy. The IMF expressed concerns that the volatility in the oil market could slow economic growth, exacerbate inflation, and increase the chances of a global economic downturn.
In its latest edition of the “World Economic Outlook,” the IMF significantly lowered its economic growth projections, revealing the economic impact of geopolitical crises. This crisis not only disrupts energy prices but also injects a new wave of uncertainty into the global economy.
“After the outbreak of the Middle East conflict, the global economic prospects suddenly dimmed,” wrote Pierre-Olivier Gourinchas, Chief Economist of the IMF, in the report’s preface. “The war has disrupted the previously steady trajectory of world economic growth.”
She stated, “The closure of the Hormuz Strait and the severe damage to critical infrastructure in the Middle East may trigger an unprecedented energy crisis.” The Middle East is a core region for global hydrocarbon supply.
She added, “The world economy faces another severe test.”
The IMF indicated that even if the conflict is temporary, it has already inflicted damage on the global economy. Even under the most optimistic scenario, the IMF expects the global economic growth rate for this year to decline from 3.4% in 2025 to 3.1%. This figure is lower than the 3.4% growth rate predicted before the outbreak of the conflict (i.e., before the interruption of oil transportation through the Hormuz Strait).
As these projections were released, global policymakers were arriving in Washington to attend the IMF and World Bank Spring Meetings. Just a few weeks ago, the focus of the meeting was expected to be on other disrupting factors such as trade tensions, artificial intelligence, and international fiscal imbalances. However, the focus of the meeting has now shifted to the economic impact of the war.
This conflict has caused oil prices to hover around $100 per barrel. Natural gas prices have surged over 80%, and the sharp increase in fertilizer prices has added to farmers’ costs.
The latest “World Economic Outlook” report outlined the potential consequences of three scenarios of the war on the economy. The first assumption is that the conflict in Iran will end in a few weeks, and the energy market will return to normal by mid-year.
If the conflict ends in the coming weeks, the global economic growth rate for this year will only be 0.2 percentage points lower than the IMF’s pre-war prediction in January, at 3.1%. In this scenario, the inflation rate for 2026 is projected to reach 4.4%, significantly higher than the previous forecast of 3.8%.
The other two scenarios involve the war lasting longer or the conflict expanding.
Based on the market conditions at the end of March, in the second, more “unfavorable” scenario, where oil prices remain around $100 per barrel throughout 2026, the global economic growth rate for this year would drop to 2.5%, with global inflation soaring to 5.4%.
Under the third, “severely unfavorable” scenario, which assumes ongoing chaos in the energy market into next year and expectations of unanchored inflation, along with a tightening financial environment, the global economy would be on the brink of recession, with economic growth rates around 2% for 2026-2027 and global overall inflation approaching 6%.
“The downside risks are enormous,” Gourinchas stated.
She urged that all parties involved in the Iran conflict take appropriate policies, including swiftly ceasing hostilities and reopening the Hormuz Strait, to keep the losses within a limited scope.
The IMF warned that the price hike caused by the war would transmit throughout the economy. This would raise the costs of energy-intensive goods like steel and cement, weaken consumer purchasing power, and likely compel central banks around the world to raise interest rates.
The IMF predicts that the economic impact of the war will be more severe on low-income and developing economies, as well as Gulf energy-exporting countries, which are facing challenges of infrastructure destruction and export disruptions.
According to the IMF’s forecasts, China’s economic growth rate for 2026 is expected to be 4.4%, lower than the 5% in 2025, while India’s economic growth rate in 2026 is projected to reach 6.5%, down from 7.6% in 2025.
Developed economies like the United States are expected to fare somewhat better, but not unscathed. The IMF currently forecasts the United States’ economic growth for 2026 to be 2.3%, higher than 2.1% in 2025 but lower than the 2.4% projected in January.
The latest economic forecast from the White House predicts that the United States’ Gross Domestic Product (GDP) will grow by 3.5% in 2026.