The International Monetary Fund has cautioned that a prolonged conflict in the Middle East could weaken global economic growth and bring the world close to a recession.
In its “World Economic Outlook: Global Economy in the Shadow of War 2026,” the IMF stated that the ongoing crisis has already disrupted trade routes, damaged infrastructure, and heightened geopolitical tensions, with ripple effects on inflation, financial markets, and commodity prices.
The report noted that emerging and developing economies that rely on commodity imports are particularly vulnerable, as currency depreciation could worsen the impact of rising food and energy costs.
According to the IMF, its projections are based on two downside scenarios — adverse and severe — depending on the duration of the conflict and the extent of damage to energy infrastructure.
Under the severe scenario, global growth could decline by 1.3 percentage points in 2026, bringing the world economy close to recession levels.
“This would mean a close call for a global recession (growth rate below 2 percent), which has happened only four times since 1980, with the latest two occasions corresponding to the global financial crisis and the COVID-19 pandemic,” the fund said.
The IMF added that the slowdown could extend into 2027, with global growth projected to drop by 1.0 percentage point to 2.2 percent.
“Inflation would be 190 basis points higher in 2026, reaching 5.8 percent, and 260 basis points higher in 2027, reaching 6.1 percent,” the report said.
“The increase in oil and gas prices has not only a larger, but also a more persistent, impact on growth, subtracting 0.6 percentage point in 2026 and a further 0.5 percentage point in 2027.”
In the adverse scenario, global growth would decline by 0.8 percentage point in 2026 to 2.5 percent, with a smaller reduction of 0.2 percentage point in 2027, bringing growth to 3.0 percent.
The fund also projected that inflation would rise by 1.5 percentage points to 5.4 percent in 2026 and by 0.4 percentage points to 3.9 percent in 2027, largely driven by higher energy costs.
“The more persistent effect on growth in 2027, however, is driven by the tightening in financial conditions and rise in inflation expectations, which implies a modest tightening in policy rates of 50 basis points in advanced economies by 2027 and a somewhat larger increase in emerging market economies,” the IMF said.
In both scenarios, the report indicated that emerging markets would face more severe impacts than advanced economies.
“In the adverse scenario, growth in 2026 is lower by 1.3 percentage points in emerging markets excluding China, relative to baseline, and by 0.6 percentage point in advanced economies,” IMF said.
“The severe scenario lowers growth in 2026 by 1.9 percentage points in emerging markets excluding China, almost twice the decline in advanced economies.”
The IMF attributed the projected downturn to increased exposure to rising commodity prices, disruptions in energy supply, higher inflation expectations, and tighter global financial conditions.