Middle East tensions cut global growth outlook: IMF

Washington: The global economy has taken a hit from the ongoing conflict in the Middle East, with growth projections lowered despite strong underlying momentum driven by technology investment and private sector resilience, the International Monetary Fund (IMF) said Tuesday.

Speaking during a group interview with reporters from India, Japan, the UAE, the Netherlands and Chile, IMF Chief Economist Pierre-Olivier Gourinchas said the conflict has reversed earlier expectations of a modest upgrade to global growth.

“We were looking at increasing our forecast for 2026 to 3.4 per cent,” he said, adding that growth is now closer to “3.1”, reflecting the impact of the war.

The downgrade comes at a time when the global economy had begun to stabilise after earlier shocks from tariffs and trade policy uncertainty.

“There was quite a bit of momentum,” Gourinchas said, pointing to a mix of factors that had supported growth, including “very accommodating financial conditions” and “the AI tech boom”.

He said private sector adaptability also played a key role. “Private sector was very agile in rerouting supply,” he noted, helping offset earlier disruptions linked to trade tensions.

The IMF estimates that tariffs and trade policy uncertainty had weighed on global growth by “0.5, 0.6 percentage point,” but their impact has now begun to fade.

“The trade and the tariffs [are] more and more in the rear view mirror,” he said.

However, the escalation in the Middle East has emerged as a fresh and significant drag, primarily through rising energy prices and supply disruptions.

Gourinchas said the extent of the damage would depend on how long the conflict lasts and how severely energy markets are affected.

“In our reference forecast, we’re expecting a relatively short-lived conflict and some normalization of oil and energy flows,” he said, adding that in such a scenario, “the effects [would be] mostly concentrated on this year.”

But he warned that more severe scenarios could have longer-lasting consequences. “If we get a tightening of financial conditions… that might actually cast a shadow beyond just one or two years,” he said.

He also flagged risks from rising food prices and financial instability, particularly in vulnerable economies. “That could create food insecurity… especially the most vulnerable,” he said.

The IMF noted that earlier gains in global growth had been supported by a combination of easing tariff pressures, strong investment in technology, and resilient domestic demand across major economies.

At the start of the year, there were expectations that growth would strengthen modestly as trade tensions eased and financial conditions remained supportive.

However, the Middle East conflict has disrupted that trajectory, adding uncertainty to energy markets and increasing inflationary pressures worldwide.

IANS