Today's Edition
WASHINGTON (AFP)
The IMF cut its 2026 global growth projection Tuesday, warning that the world economy could be "thrown off course" by war in the Middle East.
The global economy is set to grow by 3.1 percent this year, said the International Monetary Fund in its World Economic Outlook report, released during its spring meetings in Washington.
This is down from 3.3 percent forecast in January before the war erupted on February 28 with US-Israeli strikes against Iran.
"We were planning to upgrade growth for 2026 to 3.4 percent" if not for the war, IMF chief economist Pierre-Olivier Gourinchas told AFP.
The IMF expects higher inflation this year at 4.4 percent, 0.6 percentage points above its January forecast.
Compared to the oil shocks of the 1970s, "the global economy is much less oil dependent now than it was back then," Gourinchas said at a Tuesday press conference.
"There are many other sources of energy, renewables, nuclear and other things, and also the global economy has become much more efficient in terms of how much it needs oil to produce GDP," he said. "That's a source of resilience."
Growth projections this year for the Middle East and central Asia were cut by around half to 1.9 percent.
Among the world's two biggest economies, US growth is still set to accelerate to 2.3 percent this year, although the pace of growth was revised slightly lower.
"The US at the margin is benefiting from higher energy prices," Gourinchas said. But gasoline prices have also jumped for consumers.
China's growth is anticipated to cool to 4.4 percent, a touch below the January forecast, too.
The IMF flagged an underlying "unevenness" in both economies. Domestic activity lags behind exports in China, while a strong showing in the United States has been accompanied by low employment growth.
Euro area growth was revised 0.2 points down to 1.1 percent for 2026.
While the IMF does not expect inflation expectations to go off-track, there is concern they may not be as well-anchored as before. Past inflation episodes remain fresh in the public's minds, and firms might act to restore margins more quickly than before.
"If that happens, then you can get much more persistent inflation going on, that would be reflected in higher inflation expectations," Gourinchas said.
Central banks might then need to step in and raise interest rates to cool the economy, despite ongoing negative supply shocks.
