The ongoing conflict in Iran is expected to dampen global economic growth, with the International Monetary Fund (IMF) projecting a reduced growth forecast of 3.1% for 2026, down from an earlier estimate of 3.3%. This comes as a deceleration from the anticipated 3.4% growth in 2025, primarily influenced by rising oil prices due to US and Israeli military actions against Iran, and Tehran’s response which includes closing the Strait of Hormuz and targeting energy infrastructures in neighbouring nations.
Following the escalation of hostilities, the IMF revised its inflation forecast upwards to 4.4% for this year, reflecting the pressures exerted by the conflict on global energy prices. Prior to this turmoil, the global economy had demonstrated unexpected resilience, absorbing the impact of protectionist policies from the US, which had initially raised fears of economic stagnation. This resilience had been bolstered by a tech boom and increased productivity.
According to Pierre-Olivier Gourinchas, the IMF’s chief economist, the ongoing Middle Eastern conflict has disrupted the positive trajectory of the global economy. He indicated that if the conflict continues, economic repercussions could worsen, leading to a potential growth rate of just 2% in 2026 and 2027 under severe conditions where central banks may need to hike interest rates.
For Australia, expectations remain relatively stable with a reported growth of 2% while facing an inflation rate of 4%. The IMF has also downgraded its US growth forecast to 2.3% for this year, with the eurozone expected to see a collective growth of only 1.1%, down from 1.4%. Vulnerable nations, especially heavily indebted ones, are predicted to suffer considerably, with specific downgrades for sub-Saharan Africa.
Interestingly, Russia is expected to gain from the situation as an energy exporter, with its economic outlook improving modestly to 1.1%. Meanwhile, the governor of the National Bank of Ukraine highlighted the adverse effects of rising oil prices driven by the Iranian conflict on his country’s economy, anticipating a significant uptick in inflation as a result.
Overall, the IMF emphasises the vital role of prudent economic policies to mitigate these challenges and will continue to advocate for strategies aimed at bolstering economic stability and reducing poverty on a global scale.