Global Growth Forecasts Lowered Due to Conflict

“Before the war, we were preparing to adjust our growth forecasts,” described Pierre-Olivier Gourinchas, the chief economist at the IMF, in an interview with AFP. However, instead of increasing, the forecasts have been lowered. “Our baseline projections were based on a relatively short conflict with temporary disruptions in the energy market that would disappear next year,” explained Mr. Gourinchas.

Under these conditions, global growth is at risk of being limited to 3.1%, compared to the 3.3% expected by the organization in January. In the event of a prolonged war, the IMF’s worst-case scenario predicts growth of 2%, which is low – and rare – on a global scale. The United States is expected to be among the countries least economically affected by the conflict. The institution anticipates growth of 2.3% in 2026, which is 0.1 percentage point lower than the previous projection in January.

Due to the surge in oil prices, the IMF has raised its inflation forecasts, which were slowing down until recently. The Fund now expects an average price increase of 4.4% worldwide, which is 0.6 percentage point higher than projected in January. “There should be a slight increase in inflation excluding food and energy, but it should not last, and prices are expected to resume their deceleration pace in 2027,” said the chief economist of the Fund.

Emerging Markets Resilient

The impact of the conflict, in terms of both loss of growth and price increases, is unevenly distributed worldwide. In terms of growth, the Middle East, North Africa, and Central Asia region is unsurprisingly the most affected by the effects of the war, with growth halved across the entire region.

Saudi Arabia, the main economy in the region, has its growth revised to 3.1% for this year, 1.4 percentage points lower than the IMF’s previous estimate.

Conversely, the impact is expected to be minimal, or even nonexistent, for major emerging markets, with China losing only 0.1 percentage point of growth this year, at 4.4%, while India sees its growth revised upwards by 0.1 percentage point to 6.5%, and Brazil by 0.3 percentage points to 1.9%.

Another potential winner is Russia, whose growth is expected to reach 1.1% this year, compared to 0.8% in the previous estimate in January. “For Moscow, the increase in oil prices is a good news in terms of export revenues. It is one of the main reasons that led us to revise our growth projection for Russia upwards,” specified Mr. Gourinchas.

Among advanced economies, besides the minimal impact on the United States, Japan and Canada seem to be more resilient than Europe. The United Kingdom is the most affected country among advanced economies, with a revision of 0.5 percentage point compared to the estimate from last January, and growth now expected to be 0.8%.