The International Monetary Fund has revised down its 2026 global growth projection to 3.0 per cent, from 3.1 per cent in April, while raising its headline inflation forecast to 4.7 per cent—up sharply from 4.1 per cent in 2025. The twin moves, published in the July World Economic Outlook Update, reflect an economy caught between a negative energy-supply shock from the US-Israeli military campaign against Iran and a positive technology shock driven by artificial-intelligence investment. The Fund assumes the Strait of Hormuz will begin reopening in mid-July and that shipping normalises by March 2027, yielding an average oil price of $89.27 a barrel this year. Within hours of the report’s release, however, President Trump declared the ceasefire “over” and resumed bombing, rendering that baseline instantly fragile.

Viewed from Washington, the Fund’s modelling describes two opposing forces. The war has disrupted energy flows and raised input costs, yet commercial destocking and the release of strategic petroleum reserves have so far contained the damage. At the same time, an accelerating global technology cycle—centred on AI hardware and services—is generating demand that partly offsets the drag. The result is a global economy that has, in the IMF’s words, “weathered the shock better than feared”, but with highly uneven effects. Energy exporters outside the conflict zone enjoy improved terms of trade; economies plugged into the tech value chain, such as Malaysia and South Korea, are recording stronger activity even as energy importers. By contrast, energy-importing nations with limited tech exposure—a group that includes many low-income countries—face weakening momentum.

Country-level revisions illustrate the asymmetry. Egypt’s growth forecast for fiscal year 2026/27 was cut to 4.4 per cent from 4.8 per cent, with Cairo attributing the downgrade to higher financing costs, weak investment and the delayed impact of regional instability. Malaysia, meanwhile, is projected to expand 4.7 per cent in 2026, buoyed by data-centre construction and its position in the global tech supply chain. The United States, a net energy exporter, is one of the few advanced economies expected to grow faster this year than last, insulating American consumers from the worst of the commodity spike even as gasoline prices rise. In European markets, the inflation uptick has pushed headline rates above 3 per cent, though core measures remain contained, keeping central banks in a wait-and-see posture.

The next factual milestone is the actual status of the Strait of Hormuz. The IMF’s projections are conditioned on a gradual reopening that is now in doubt. If the waterway remains disrupted, oil and liquefied natural gas prices will face renewed upward pressure just as European economies begin refilling gas storage ahead of winter. The Fund itself warns that a renewed conflict could prolong commodity volatility, tighten financial conditions and worsen food security in low-income countries. The July WEO therefore already reads as a snapshot of a moment that may have passed; the next update, due in October, will reveal whether the Fund’s two-speed world can hold.