The International Monetary Fund cut its forecast for global economic growth this year to 3.0 percent, a tenth of a point below its April projection, while lifting the 2027 estimate to 3.4 percent. The revision, published in the July update of the World Economic Outlook, leaves cumulative growth over the two-year horizon virtually unchanged but shifts the timing of the recovery. Headline inflation is now seen rising to 4.7 percent in 2026, up from 4.1 percent last year, before easing to 3.9 percent in 2027, signalling that the disinflation trend that began in early 2024 has stalled.

The global economy is being pulled in opposite directions by two powerful forces. The war in the Middle East—triggered by US and Israeli strikes on Iran on 28 February and Tehran’s subsequent closure of the Strait of Hormuz—has delivered a severe energy supply shock, pushing oil prices roughly 25 percent above pre-war levels. At the same time, an investment boom in artificial intelligence and related technologies is accelerating demand, particularly for semiconductors and computing infrastructure. The IMF’s baseline assumes the Strait begins to reopen in mid-July and that conditions return to pre-war norms by March 2027, though renewed US-Iran strikes on the day of the report underscored the fragility of that assumption.

The impact is highly asymmetric. Energy exporters outside the conflict zone—notably the United States, Brazil, and Saudi Arabia—are benefiting from improved terms of trade, while economies deeply integrated into the AI supply chain, such as South Korea, Taiwan, Thailand, and Malaysia, are recording resilient growth even as energy importers. By contrast, energy-importing nations with limited participation in the technology value chain are seeing activity weaken. The euro area’s 2026 forecast was cut to 0.9 percent, Mexico’s to 1.2 percent, and the Middle East and Central Asia region was slashed by 1.2 points to just 0.7 percent. China’s outlook was revised up slightly to 4.6 percent, India is projected to grow 6.4 percent, and Brazil received a notable upgrade to 2.4 percent, reflecting its position as a net energy exporter and resilient domestic demand.

Risks remain tilted to the downside. A collapse of the ceasefire and a prolonged closure of the Strait would catch the global economy with depleted strategic reserves and less policy room to manoeuvre than at the start of the year. The Fund also flags the danger of accelerating trade fragmentation and a potential correction in technology-driven market expectations. The next factual milestone is whether the Strait of Hormuz reopens on the timeline embedded in the baseline; the Fund’s next full forecast round is scheduled for October.