The International Monetary Fund has modestly reduced its forecast for global economic growth this year, but warned that the damage from the war with Iran could be much more severe if the conflict dragged on and oil prices rose further.

“Once again, the global economy is being threatened with being thrown off course – this time by the outbreak of war in the Middle East,” the IMF said in its latest World Economic Outlook report, published today.

The fund now expects global growth of 3.1% in 2026, a 0.2 percentage point downgrade from its January forecast. This modest revision assumes that the war will be “relatively short-lived,” it said.

However, it also outlined two scenarios for a longer-lasting conflict. Under the more severe of these – in which oil and natural gas prices spike 100-200% relative to January and stay at that level into 2027 – global economic growth would come in at only 2% this year.

That would amount to “a close call for a global recession,” defined as economic growth below 2%, which has happened only four times since 1980, the IMF said.

Before the war, the global economy was performing better than expected with growth on track to be revised upward this year, it noted. In one positive development, the downward revision was partly offset by reduced US tariff rates compared with last year, the IMF said.

“The global outlook has abruptly darkened following the outbreak of war in the Middle East,” Pierre-Olivier Gourinchas, economic counsellor at the IMF, wrote in the report, warning that the conflict could still cause a global “energy crisis on an unprecedented scale.”

Source: CNN
-- Agencies