IMF slightly raises its global growth forecast for 2026 to 3.1%

The IMF stated that while many advanced economies have been supported by increased investment in artificial intelligence technology, poorer countries that do not benefit from this boom face extremely difficult choices as they deal with rising energy prices caused by the American war on Iran.

The war launched by the United States against Iran in February has plunged the Middle East into a spiral of violence and caused a massive spike in global energy prices as a result of the retaliatory measures taken by Tehran.

Prices for refined petroleum products remain between 70 and 95 percent above pre-war levels, placing pressure on countries that rely on energy imports for their economic activities.

As the war enters its eighth month, IMF Chief Economist Silvana Tenreyro warned that "the prolonged conflict in the Middle East could impose additional pressure on inflation and slow down growth."

There was a clear divergence in the forecasts provided by the Fund.

It sharply lowered its growth forecast for the Middle East and Central Asia for 2026, projecting a slight contraction in GDP.

In its report, the Fund projected a contraction of 0.3 percent this year, down from its forecast six months ago of 1.9 percent growth.

It also projected that Saudi Arabia's GDP would contract by 3.3 percent this year before seeing a recovery in 2027.

The institution prepared these forecasts before the recent escalation between Riyadh and the Houthis.

It noted that it expects the region to recover quickly once the war ends, but significant uncertainty remains regarding when that will happen.

In advanced economies, growth remained strong, driven by the AI boom and other factors.

The report projected that advanced economies would record growth of 2.1 percent in 2026, with economies involved in the AI supply chain, such as Taiwan and South Korea, achieving significantly higher growth rates.

The IMF also reported that it expects growth in China, the world's second-largest economy, to slow by 0.5 percentage points to 4.5 percent this year, primarily due to weak domestic demand.

The Fund projected that economic growth in the Eurozone would slow to 1.1 percent this year before accelerating slightly in 2027, as a result of persistently high energy costs and weak consumer confidence.

It also projected that global inflation would accelerate to 4.7 percent in 2026, driven by the war in Iran and the AI boom, with the effects extending to both advanced and developing economies.