IMF warns of sharp slowdown in global economy

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The global economy is on track for a sharp downward trajectory, the International Monetary Fund (IMF) warned on Wednesday.

Global growth is projected to decline from 3.5 percent in 2025 to 3 percent in 2026 before climbing back up to 3.4 percent in 2027, according to a July update in the organization’s World Economic Outlook.

The IMF report largely attributed this bleak outlook to financial strains on energy exporters and increases in inflation caused by the Iran war. The organization also cited an increased dependence on AI technology and renewable energy as two factors that helped offset the negative impact of this conflict on the global economy.

“The global economy as a whole has, so far, weathered the shock from the war better than feared,” the researchers said. “Movements in and repercussions from the main channels of transmission—commodity prices, inflation expectations, and financial conditions—have been relatively limited.”

The report’s researchers noted that world outlooks “are more balanced” than they were in April, but they warned that a resumption in military operations in the Middle East “looms large” and could ultimately worsen global economic conditions.

The IMF researchers urged policymakers to focus on ensuring price stability, central bank independence and strong financial oversight in the coming months.

The relationship between the U.S. and Iran is on shaky ground after U.S. Central Command announced Tuesday the military had reopened strikes on Iran after Tehran targeted commercial ships in the Strait of Hormuz.

Both sides have claimed that the other’s actions violated a framework peace agreement signed last month — accusations that have raised concerns about the possibility of a return to all-out war.

Oil prices surged Wednesday after the U.S. revoked its waiver on Iranian oil sanctions and President Trump said the ceasefire agreement was “over.”

The Trump administration has faced immense pressure to end its military operations against Iran amid rising domestic energy costs precipitating from the conflict. In June, several Republican lawmakers in both chambers of Congress joined Democrats to support a war powers resolution urging the president to remove U.S. troops from this conflict.

The president and his administration have continued to emphasize that these economic pains are only temporary in the pursuit of a long-term nuclear agreement with Iran.

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