Reshma Kapadia

The International Monetary Fund said Wednesday the global economy has navigated the Iran war better than anticipated so far.

That resilience, combined with strong artificial-intelligence-related investment, led the IMF to leave its global growth outlook largely unchanged at 3% this year, just 0.1 percentage point below its April forecast, and while raising its 2027 forecast to 3.4% from 3.2%.

Inflation continues to be a risk, with the IMF noting that the disinflation that began in 2024 stalled with the Iran war. The economists raised expectations for global headline inflation to 4.7% this year, up from 4.1% last year, before easing to 3.9% in 2027.

The fund said the risk outlook is more balanced than it was in April, but remains tilted to the downside. An example of those risks emerged overnight with the escalation in Iran. President Donald Trump said Wednesday the cease-fire was over, after Iran's attacks on a ship in the Strait of Hormuz on Tuesday.

During a news briefing, Petya Koeva Brooks, deputy director in the IMF's research department, said the IMF's forecast assumed the Strait would reopen by mid-July and gradually see more traffic, returning to its prewar state by March 2027. The forecasts, based on the geopolitical situation about a month ago, assumed an average oil price of $89 per barrel for the year -- higher than where it was during its last outlook in April.

Brooks said the team was monitoring the latest escalation of the U.S.-Iran war. If developments go in a different direction and result in higher oil prices, higher inflation expectations and less benign financial conditions would take a toll on the global economy, she added.

Overall, IMF economists said the economy overall has weathered the war shock better than feared so far, though they cautioned that transmission of those risks is still in the early stages -- and impact has been uneven.

A combination of factors helped the global economy withstand the conflict: inventory destocking, expanded energy production outside of the Gulf, renewables' bigger share of energy production, and actions to soften demand, among others.

But the pain has been felt unevenly. Since the war began, retail gasoline prices across emerging Asia have soared 30%, compared with less than half that in Latin America. Liquefied natural gas prices have risen about 50% in Asia, 25% in Europe, and only 10% in the U.S.

The IMF's outlook underscored a widening gap between the haves and have-nots across the global economy. Economies tied to the AI supply chain and energy exporters are seeing strong growth, offsetting weakness in other economies, including net energy importers hit hardest by higher energy costs following the conflict.

First-quarter global growth was stronger than expected at 3%, compared with the 2.7% forecast the IMF made in April, helped by economies' being less reliant on energy than in the past.

The biggest boost to global growth, however, came from economies tied to the global technology supply chain, particularly Taiwan, Korea, Thailand, and Malaysia -- the four biggest exporters of AI-related hardware that saw stronger-than-expected growth.

China also recorded 8.1% growth in the period, faster than the IMF had anticipated, benefiting from public infrastructure investment and high-tech manufacturing, as well as strong exports.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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July 08, 2026 11:15 ET (15:15 GMT)

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