International institutions warn of the shock of Iran’s war on the global economy economy

The International Monetary Fund and international financial institutions confirmed that the global economy has shown an ability to withstand the repercussions of the war in the Middle East, despite continuing pressures on energy and trade markets, while the Fund reduced its global growth forecast for 2026 to 3%, warning of the escalation of risks associated with the conflict.

The International Monetary Fund, along with the World Bank, the International Energy Agency and the World Trade Organization, said in a joint statement yesterday, Wednesday, that the global economy has shown “resilience in the face of the shock resulting from the war in the Middle East,” calling for progress towards ending the conflict and reopening the Strait of Hormuz, as this is necessary to support growth and price stability.

The statement added, “Uncertainty levels are still high, and the repercussions of the war may continue for a long time, while energy markets and the movement of goods continue to face pressures,” stressing the commitment of the four institutions to continue monitoring developments in energy, trade, and the economy, and to enhance their readiness to take additional measures when needed, including supporting countries to enhance their ability to withstand in the areas of energy, food, and trade.

In its updated report, the International Monetary Fund reduced its forecast for global growth in 2026 to 3% compared to 3.1% in its forecast issued in April, with growth rising to 3.4% in 2027, but it remains below the average of 3.5% recorded during the years 2024 and 2025.

The Fund warned that the war in the Middle East, along with the possibilities of correcting the high valuations associated with the artificial intelligence sector, represent the most prominent risks facing the global economy, although the strong demand for artificial intelligence technologies contributed to compensating for part of the effects of declining energy supplies.

On the other hand, the Fund raised its forecast for global inflation in 2026 to 4.7%, an increase of 0.3 percentage points from April estimates, and expected it to decline to 3.9% in the following year.

Absorbing the trauma of war

The report indicated that energy prices rose by about 25% compared to their levels before the outbreak of war, expecting them to remain at high levels, assuming the Strait of Hormuz is gradually reopened starting in mid-July, shipping traffic returns to normal levels by March 2027, and an average oil price of $89 per barrel.

Petia Cueva Brooks, Deputy Director of the Research Department at the International Monetary Fund, said: “We expect the economy to recover after the sharp decline it witnessed earlier, although growth this year will be weaker than we expected before the outbreak of the war, to be followed by a recovery next year.”

She added: “So far, the global economy has shown an ability to absorb the shock of war better than previous concerns, with limited indications of widespread spillover effects.”

The Fund raised its expectations for some energy-exporting countries and economies related to the technology sector, while lowering its expectations for commodity-importing countries that do not benefit sufficiently from the artificial intelligence boom.

He also expected global trade growth to slow to 3.5% in 2026, compared to 5% in 2025, before recovering to 4.3% in 2027.

At the level of major economies, the Fund kept its growth expectations for the US economy at 2.3% in 2026, raising it to 2.2% in 2027, while it reduced its growth expectations for the Eurozone to 0.9%, and expected the Japanese economy to grow by 0.6%.

As for the Middle East and Central Asia region, which was most affected by the war, the Fund reduced its growth expectations in 2026 to 0.7%, a decline of 1.2 percentage points from April estimates, with a strong recovery expected to reach 6.5% in 2027 if the intensity of the conflict decreases and the conditions of the energy markets improve.