IMF lowers global growth forecast to 3 pc as AI helps limit Iran war fallout

The International Monetary Fund (IMF) has trimmed its global growth forecast for 2026 to 3 per cent, citing the energy shock triggered by the Iran war, while saying rising investment in artificial intelligence (AI) and other technologies is helping offset some of the economic impact.

In its latest outlook released on Wednesday, the IMF projected the global economy to grow 3 per cent this year, down from 3.5 per cent in 2025 and below its April forecast of 3.1 per cent. It expects growth to recover to 3.4 per cent in 2027.

The fund said Iran's closure of the Strait of Hormuz following US and Israeli attacks disrupted energy supplies, pushing up oil prices and increasing inflationary pressures. It expects oil prices to rise nearly 32 per cent this year and global consumer inflation to increase to 4.7 per cent in 2026, compared with 4.1 per cent in 2025.

The IMF's projections assume that the Strait of Hormuz reopens later this month and that trade through the waterway returns to normal by next March.

Petya Koeva Brooks, deputy director of the IMF's research department, said the global economy had weathered the shock better than expected, helped by existing oil stockpiles and increased production by oil-exporting countries outside the Persian Gulf.

India remains fastest-growing major economy

The IMF forecast India to remain the world's fastest-growing major economy, with growth of 6.4 per cent in 2026, down from 7.7 per cent last year, supported by strong consumer spending.

The US economy is projected to grow 2.3 per cent this year, unchanged from the IMF's April forecast, aided by tax cuts, productivity gains and strong equity markets.

The euro area is expected to expand 0.9 per cent, down from 1.4 per cent in 2025, as higher energy prices weigh on growth.

China's economy is forecast to grow 4.6 per cent, supported by public investment, high-tech manufacturing and exports despite pressure from higher energy costs and weakness in the property sector.