The International Monetary Fund (IMF) has downgraded its global economic outlook for 2026 amid the ongoing conflict in the Middle East, saying the war has thrown the global economy off a previously steady growth path.

In its latest World Economic Outlook report, the IMF projects global GDP to rise 3.1% in 2026, a downward revision of 0.2 percentage point from its January forecast. The 2027 growth forecast stayed unchanged at 3.2%.

The downward revision for 2026 is largely driven by disruptions from the conflict in the Middle East that is impacting commodity markets, inflation expectations and financial conditions, said the IMF, which was poised to upgrade global growth before the war. 

Current projections were partly offset by positive carryover from recent strong year-end data and lower-than-expected US tariff rates.

"Prior to the war, we were poised to upgrade our global growth forecast, reflecting continued momentum in the global economy supported by a tech investment boom, some moderation in trade policy tensions, fiscal support in some countries, and accommodating financial conditions. War in the Middle East will overwhelm these underlying forces," it wrote in the report's foreword.

Meanwhile, global headline inflation is expected to increase to 4.4% in 2026 and decline to 3.7% in 2027, marking upward revisions for both years, according to the report.

The IMF noted that its "reference forecast" assumes that the current war will remain limited in duration, intensity and scope, with resulting disruptions fading by mid-2026. 

However, in an "adverse" scenario marked by larger and more persistent increases in energy prices, global growth would slow further to 2.5% in 2026, while inflation would rise to 5.4%. In a "more severe" scenario, involving greater damage to energy infrastructure in the conflict region, global growth would fall to around 2% in 2026, with headline inflation surging to above 6% by 2027.

Given the shifting economic and geopolitical landscape, the IMF emphasized the importance of preserving price and financial stability, safeguarding fiscal sustainability and implementing structural reforms, as well as addressing domestic imbalances and trade restrictions. 

It also called for countries to enhance coordination to restore stability in international economic relations.