The fallout from the Middle East conflict sparked by the war with Iran has “abruptly darkened” the global economic outlook, the International Monetary Fund said Tuesday while warning of lower growth compared with 2025.
The IMF downgraded its forecast for global growth to 3.1 per cent in 2026 from the 3.3 per cent it had forecast in January. That’s also down from the 3.4 per cent expansion seen last year.
That modest 0.2 per cent downgrade is based on the assumption of “a short-lived conflict,” IMF economic counsellor Pierre-Olivier Gourinchas wrote in the report.
“The global outlook has abruptly darkened following the outbreak of war in the Middle East” more than a month ago, he said, which “interrupted what had been a steady growth trajectory” and upended a planned upgrade to the IMF forecast.
“The duration and scale of the conflict and the time it will take for energy production and transit to normalize after the end of hostilities will determine the ultimate size of the shock to the global economy,” Gourinchas added.
Although a fragile two-week ceasefire remains in effect, negotiations to end the war have not yet yielded a peace agreement, raising fears attacks could resume.
U.S. and Israeli strikes on Iran — and Tehran’s closing of the Strait of Hormuz and retaliatory strikes on oil refineries and other energy infrastructure in neighbouring countries — have driven oil and gas prices sharply higher around the world.
As a result, the IMF marked up its expectation for global inflation this year to 4.4 per cent from 4.1 per cent in 2025 and from the 3.8 per cent it had forecast for this year in January.
The souring outlook from the IMF comes less than two weeks after Deloitte Canada also downgraded its growth forecast for the Canadian economy to 1.2 per cent for 2026 — down from the 1.5 per cent estimated in January, as well as last year’s 1.7 per cent gain.The IMF forecast for Canada is more optimistic, predicting 1.5 per cent growth this year, down just 0.1 percentage points from its January forecast. Both the January report and Tuesday’s update predict a 1.9 per cent expansion in 2027.
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