IMF: Global Economy Stands at Crossroads Between Iran War Risks, Technology Boom

The International Monetary Fund (IMF) has warned that the global economy is facing a critical turning point between the negative effects of geopolitical conflicts and the growth opportunities created by rapid technological advances.

In its latest update to the World Economic Outlook released on Wednesday, the IMF lowered its global growth forecast for 2026 by 0.1 percentage point to 3%, compared with its previous projection issued in April 2026.

The Fund expects global growth to accelerate to 3.4% in 2027, representing an upward revision of 0.2 percentage points from its April forecast. However, the outlook remains below the global growth average of 3.5% recorded in 2024 and 2025.

The report, titled “Global Economy at a Crossroads Between War and Technology,” said the slowdown reflects the impact of the Middle East conflict, partially offset by a stronger global technology cycle driven by rising demand, advances in artificial intelligence (AI), and wider adoption of new technologies.

The IMF said the global economy has demonstrated greater resilience in absorbing the effects of the Middle East war than initially expected.

According to the IMF, the economic impact of the Iran conflict varies significantly depending on countries’ exposure to the war and their position in global technology value chains.

Energy-exporting countries outside the conflict zone have benefited from improved terms of trade, while economies deeply integrated into technology-driven growth have maintained stronger performance even when they are energy importers.

In contrast, energy-importing economies with limited participation in technology value chains, many of which are low-income countries, have experienced weaker economic activity.

The IMF sharply downgraded its growth forecast for the Middle East and Central Asia region, projecting growth of just 0.7% in 2026, down 1.2 percentage points from its April forecast, before rebounding to 6.5% in 2027.

The revision is based on the assumption that the Strait of Hormuz will remain closed for longer than previously expected, resulting in a deeper short-term disruption followed by a stronger recovery.

The Fund expects significant contractions in the economies of Iraq, Kuwait, and Qatar in 2026, followed by growth exceeding 10% in 2027, as these commodity-exporting economies are among those most affected by disruptions to energy production and transportation.

The IMF lowered its forecast for Saudi Arabia’s economic growth in 2026 by 1.4 percentage points to 1.7%, while raising its 2027 projection to 5.5%, noting that the kingdom has been relatively less affected due to diversified export routes.

For Iran, the IMF improved its 2026 outlook, forecasting a contraction of 5.4%, citing stronger oil exports during March and April and the easing of some restrictions on Iranian oil shipments.

The IMF raised its forecast for Egypt’s economic growth to 4.6% in the 2025/26 fiscal year, while lowering its projection for 2026/27 to 4.4%.

The Fund said commodity-importing countries in the region remain relatively resilient against negative shocks caused by higher energy and food prices, while economies in the Caucasus and Central Asia continue to benefit from supportive growth factors.

The IMF slightly reduced its growth forecast for advanced economies, expecting expansion of 1.7% in 2026 and 1.8% in 2027.

The Fund maintained its forecast for the U.S. economy at 2.3% growth in 2026, followed by 2.2% in 2027, supported by fiscal policy, favorable financial conditions, continued corporate technology investment, and productivity improvements.

The impact of the conflict on the U.S. economy is expected to remain limited due to the country’s status as a net energy exporter.

For the eurozone, the IMF expects growth of 0.9% in 2026 and 1.2% in 2027, cutting its 2026 forecast by 0.2 percentage points due to weaker-than-expected first-quarter performance.

Meanwhile, China’s growth forecast for 2026 was raised by 0.2 percentage points to 4.6%, while growth is expected to slow to 4.1% in 2027.

The IMF expects global headline inflation to rise to 4.7% in 2026, compared with 4.1% in 2025, before declining to 3.9% in 2027.

The Fund said the latest forecast represents a slight increase from its April projection and indicates that the global disinflation trend that began in early 2024 has temporarily stalled.

The IMF warned that renewed conflict in the Middle East remains a major risk, potentially causing continued volatility in commodity prices, additional supply chain pressures, higher inflation, and tighter financial conditions.

Following the global energy shock, the Fund expects average oil prices to reach $89.27 per barrel in 2026 and $78.70 per barrel in 2027, noting that energy prices remain around 25% above pre-war levels.

The report said the transmission of war-related effects to energy markets is still in its early stages, with commercial and strategic inventory withdrawals providing temporary relief. However, forward-looking indicators, including supply chain pressures and manufacturing purchasing managers’ indices, suggest economic momentum could weaken in the coming period.

Global trade growth is expected to slow to 3.5% in 2026 before improving to 4.3% in 2027.

The IMF said the future of the global economy will be shaped by two opposing forces: a negative supply shock caused by war-related disruptions to supply chains, and a positive technology-driven shock fueled by advances in artificial intelligence and increased adoption of digital technologies.

The Fund emphasized that artificial intelligence represents both an opportunity and a risk. While AI could boost productivity and economic growth if investment continues in infrastructure, energy, and skills development, excessive valuations of AI companies could trigger sharp financial market corrections if expectations for profits or productivity gains weaken.