The International Monetary Fund has sharply downgraded its outlook for the world economy, warning that the ongoing war in Iran — involving U.S. and Israeli strikes and Tehran's retaliatory closure of the Strait of Hormuz, the narrow waterway through which a large share of the world's oil passes — has disrupted energy markets and reversed momentum that had built up through 2025. The IMF now forecasts global growth of 3.1% in 2026, down from the 3.3% it had projected in January and below the 3.4% expansion recorded last year.

The conflict has driven oil and gas prices sharply higher worldwide, pushing the IMF's global inflation forecast up to 4.4% this year, compared with 4.1% in 2025 and a pre-war January projection of 3.8%. "War in the Middle East has halted this momentum," the fund's chief economist Pierre-Olivier Gourinchas wrote in a blog post accompanying the IMF's latest World Economic Outlook. The IMF's baseline forecast assumes the conflict remains relatively short-lived and that energy prices rise a "moderate 19%" this year. In a severe scenario — where energy shocks persist into 2027 and central banks are forced to raise interest rates aggressively to contain inflation — global growth could fall to just 2%, a level economists associate with a near-recession for the world economy. "Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated," Gourinchas cautioned.

The impacts are being felt unevenly. Among wealthy nations, Britain has been hit hardest, with the IMF cutting its UK growth forecast by 0.5 percentage points — the largest downgrade in the G7, the club of leading industrialised economies. The UK's heavy reliance on natural gas for electricity generation means higher global gas prices feed quickly into household energy bills. Inflation is forecast to climb toward 4%, and unemployment could reach its highest level in more than a decade. The eurozone's 21 member states are collectively forecast to grow just 1.1% this year, down from 1.4% in 2025, while U.S. growth has been trimmed slightly to 2.3%. One relative beneficiary is Russia, an energy exporter whose IMF growth forecast was revised upward to 1.1%, despite the broader sanctions placed on its economy following the 2022 invasion of Ukraine.

The countries facing the most severe consequences, however, are low-income nations that import energy and lack the fiscal resources to cushion their populations from rising prices. The IMF cut its Sub-Saharan Africa growth forecast to 4.3% from the 4.6% expected in January. Ukraine, already fighting a separate war with Russia, faces compounding pressure: its central bank governor noted that annual inflation hit 7.9% in March, well above target, driven in significant part by fuel costs linked to the Iran conflict. "We are trying to walk on a razor blade," he said.

The IMF's warning underscores how a regional military conflict can rapidly transmit economic pain across the globe, particularly through energy markets. Before the war, the world economy had shown surprising resilience in the face of U.S. trade tariffs and geopolitical tensions, buoyed by a technology investment boom tied to artificial intelligence. That buffer has now been significantly eroded. The priority for policymakers gathering at this week's IMF and World Bank spring meetings in Washington is managing the immediate inflationary shock while laying the groundwork — including investment in renewable energy — to reduce vulnerability to future disruptions.