Middle East conflict may push global economy close to recession, says IMF

The International Monetary Fund (IMF) has warned that a prolonged Middle East conflict could significantly weaken global economic growth and push the world economy close to recession.

In its “World Economic Outlook: Global Economy in the Shadow of War 2026,” the IMF said the ongoing conflict has already disrupted trade routes, damaged infrastructure, and intensified geopolitical tensions, with effects on inflation, financial markets, and commodity prices.

The fund noted that commodity-importing emerging market and developing economies are at risk of being hit harder, as currency depreciation could worsen the impact of rising energy and food prices.

According to the report, the IMF’s projections assume two downside scenarios — adverse and severe — depending on how long the conflict persists and the extent of damage to energy infrastructure.

Under the severe scenario, global growth would fall by 1.3 percentage points in 2026, creating what the IMF described as a “close call” for a global recession.

“This would mean a close call for a global recession (growth rate below 2 percent), which has happened only four times since 1980, with the latest two occasions corresponding to the global financial crisis and the COVID-19 pandemic,” the fund said.

The IMF said the slowdown would persist into 2027, with global growth reduced by 1.0 percentage point to 2.2 percent.

“Inflation would be 190 basis points higher in 2026, reaching 5.8 percent, and 260 basis points higher in 2027, reaching 6.1 percent,” the report said.

“The increase in oil and gas prices has not only a larger, but also a more persistent, impact on growth, subtracting 0.6 percentage point in 2026 and a further 0.5 percentage point in 2027.”

Under the adverse scenario, the IMF said global growth would be reduced by 0.8 percentage point in 2026, dropping to 2.5 percent.

The fund added that there would also be a modest 0.2 percentage point impact on growth in 2027, bringing global growth to 3.0 percent.

The IMF said inflation would rise by 1.5 percentage points to 5.4 percent in 2026 and by 0.4 percentage points to 3.9 percent in 2027, largely driven by higher energy prices.

“The more persistent effect on growth in 2027, however, is driven by the tightening in financial conditions and rise in inflation expectations, which implies a modest tightening in policy rates of 50 basis points in advanced economies by 2027 and a somewhat larger increase in emerging market economies,” the fund said.

In both scenarios, the report said the impact on emerging markets is expected to be more severe than on advanced economies.

“In the adverse scenario, growth in 2026 is lower by 1.3 percentage points in emerging markets excluding China, relative to baseline, and by 0.6 percentage point in advanced economies,” IMF said.

“The severe scenario lowers growth in 2026 by 1.9 percentage points in emerging markets excluding China, almost twice the decline in advanced economies.”

The fund attributed the impact to larger exposure to higher commodity prices, disruptions in energy production, rising inflation expectations, and tighter global financial conditions.