IMF warns renewed Middle East conflict threatens global growth and inflation

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BRUSSELS — Renewed geopolitical tensions in the Middle East would hurt growth and stoke inflation, the International Monetary Fund warned Wednesday, as a fragile ceasefire between Iran and the U.S. threatens to fall apart after fresh military strikes on both sides.

In an update to its world economic outlook — which was written before news of the ceasefire unraveling — the IMF said “the most imminent risk” to the global economic forecast “stems from developments in the Middle East.”

A resurgence of conflict in the region “could extend commodity price volatility, further threaten supply chains, raise prices, and weigh on financial conditions,” the update stated.

U.S. President Donald Trump said Wednesday that the U.S. ceasefire and peace process with Iran is “over” after the Pentagon launched major retaliatory strikes overnight.

The economic shocks of a renewed Middle East conflict “would propagate through a further increase in commodity prices and extended volatility, supply shortages, and exchange rate pressures,” the IMF said.

Countries’ oil stocks are depleted after governments released them during the early months of the conflict, meaning stocks “could reach stress levels should supply disruptions persist or hoarding gather steam,” the update stated.

Actions by individual countries to shore up their supply could “further amplify global price pressures,” the IMF said.

Food insecurity could “worsen materially” if disruptions in fertilizer and energy markets continue, especially in low-income countries in South Asia and sub-Saharan Africa, while higher food and energy prices “could heighten the risk of social unrest and domestic political instability,” particularly in vulnerable economies, it said.

Overall global growth is projected to be 3 percent in 2026 and 3.4 percent in 2027, while headline inflation is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026 before declining to 3.9 percent in 2027, the update stated.

The “modest slowdown” in growth compared to 2024-5 reflects the economic impact of the Middle East war, but is “partly offset” by accelerated demand thanks to developments and adoption of artificial intelligence.

If recent surges in AI-related investments translate into wide deployment of the technology and efficiency gains, medium-term growth could strengthen. But if expectations around the profitability of AI and the productivity gains it can bring are revised downward, investment in tech could “retrench abruptly,” leading to a sharp international market correction, the IMF warned.

In that case, the broader consequence could be “tighter global financial conditions, balance sheet pressures, and weaker activity extending beyond the technology sector.”