IMF and World Bank meetings Global growth outlook downgraded as Iran war hits prices
Without the Iran war, the IMF would have upgraded its outlook. But the war has created a far bigger risk to the global economy than President Donald Trump's initial wave of steep tariffs did a year ago, Gourinchas told me in an interview earlier.
"What's happening in the Gulf is potentially much, much larger, and that's what our scenarios are kind of documenting," he said.
The IMF cuts its 2026 global growth forecast to 3.1%. That is down 0.2 percentage points from January, based on the assumption the war will be short-lived and oil will average $82 per barrel this year.
The IMF cut its growth outlook due to Iran war-driven energy price spikes and supply disruptions and warned that the global economy would teeter on the brink of recession if the conflict worsens.
In the institution's "adverse scenario" of a longer conflict and oil prices averaging $100 per barrel this year, growth slows to 2.5%.
What the IMF said about major economies
1) THE UNITED STATES
The IMF shaved its U.S. growth outlook for this year to 2.3%, down just a tenth of a percentage point from January, reflecting the positive effect of tax cuts, the lagged effect of interest rate cuts and continued AI data center investment partly offsetting the higher energy costs.
These effects are expected to continue in 2027, with growth next year now forecast at 2.1%, up a tenth of a point from January.
2) THE EURO ZONE
The euro zone, still struggling with higher energy prices caused by Russia's 2022 invasion of Ukraine, takes a bigger hit from the Middle East conflict, with its growth outlook falling 0.2 percentage points in both years to 1.1% in 2026 and 1.2% for 2027.
3) JAPAN
Japan's growth is largely unchanged under the most benign scenario at a weak 0.7% for 2026 and 0.6% for 2027, but the IMF said that it expects the Bank of Japan to hike rates at a slightly faster pace than anticipated six months ago.
4) CHINA
The IMF forecast China's growth for 2026 at 4.4%, down a tenth of a point from January as the higher energy and commodity costs are partly offset by lower U.S. tariff rates and government stimulus measures.
But the IMF said headwinds from a depressed housing sector, a declining labor force, lower returns on investment and slower productivity growth will cut China's 2027 growth to 4.0%, a forecast unchanged from January.
