The International Monetary Fund (IMF) has revised its global economic growth forecast downward to 3.0 percent for 2026, a slight reduction from the 3.1 percent projected in its April 2026 outlook. The update, contained in the July World Economic Outlook released on Wednesday, also projects global growth of 3.4 percent in 2027, below the average annual growth of 3.5 percent recorded in 2024 and 2025.
Middle East Conflict and AI Drive Divergent Impacts
According to the IMF, the modest slowdown reflects the economic effects of the war in the Middle East, partly offset by stronger demand fueled by advances in artificial intelligence (AI). The impact varies significantly across countries, depending on their exposure to the conflict and their position in the global technology value chain. Energy-exporting nations outside the conflict zone have benefited from improved terms of trade, while economies integrated into the AI-driven technology boom have recorded stronger economic activity, even when they are net energy importers.
“The modest slowdown reflects the effects of the war in the Middle East being partly offset by accelerated demand-driven momentum in the global technology cycle, thanks to advances in artificial intelligence (AI) and its adoption. The impact varies widely based on countries’ exposure to the war and position in the technology value chain,” the IMF stated. “Energy exporters outside the conflict zone benefit from favourable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers.”
Weak Prospects for Developing Economies
Growth prospects remain weak for many developing economies, the IMF warned. Activity is weakening among energy importers with limited participation in the technology value chain, a group that includes many low-income countries. For Nigeria, the IMF maintained its April prediction that the economy will grow by 4.1 percent in 2026 and 4.3 percent in 2027, up from the 4.0 percent projected for 2025.
Global Inflation to Rise Before Easing
The IMF also warned that global headline inflation is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026, then decline to 3.9 percent in 2027. These figures represent an upward revision from the April outlook, signaling that the disinflation trend since early 2024 has stalled.
Risks Tilted to Downside
While risks to the global economy have become more balanced since April, the IMF said they remain tilted to the downside. The report warned that the possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions. “The possibility of renewed Middle East conflict looms large and could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions,” the IMF cautioned.
Meanwhile, US President Donald Trump on Wednesday declared the ceasefire with Iran ‘over’ after fresh hostilities erupted again in the region. The conflict began on 28 February, when US/Israeli strikes on Iran triggered a wider regional war. A ceasefire was signed on 17 June, creating a window for negotiations before the truce collapsed.
Trade Fragmentation and Technology Risks
The IMF cautioned that growing trade fragmentation could further weaken economic output and push prices higher. A possible correction in technology-driven market expectations and shrinking policy buffers could amplify downside risks. On the upside, faster normalization in energy markets, stronger-than-expected investment in technology, renewed international cooperation to lower trade barriers, and structural reforms could lift medium-term growth.
Despite heightened geopolitical tensions, the IMF said the global economy has remained more resilient than expected, with the impact on commodity prices, inflation expectations, and financial conditions so far relatively limited. However, the full effects of the conflict have yet to materialize, as early indicators point to softer global economic momentum and increasing pressure on some countries.
Policy Recommendations
The IMF urged policymakers to prioritize restoring price stability through clear communication, central bank independence, and strong financial supervision. It advised rebuilding fiscal buffers and limiting fiscal support to temporary, targeted measures that preserve market price signals. The Fund also called for structural reforms to strengthen energy security, improve AI readiness, support domestic economic rebalancing, and reinforce international cooperation amid rising geopolitical tensions.
“Global economic activity and the outlook are being shaped by two major forces, pushing in opposite directions with asymmetric effects across countries. First is the negative supply shock induced by the war in the Middle East. Second is the ongoing positive technology shock manifesting in accelerated momentum of the global technology cycle, in no small part driven by advances in and deployment of artificial intelligence (AI) tools,” the IMF concluded.
