Three months ago, economists at the International Monetary Fund worried that a prolonged Iran conflict could push the world into a recession.

June's ceasefire largely took that risk off the table, the IMF's forecasters said in their latest round of quarterly projections released Wednesday. The upshot of the four-month war for the global economy: slightly weaker growth, but limited long-term damage.

On Wednesday, President Trump said the ceasefire is over. That followed renewed attacks by Iran on shipping in the Strait of Hormuz, and U.S. retaliatory strikes on Iran. Trump stopped short of saying the U.S. would restart the war.

In its April forecast, the IMF had outlined three scenarios for how the world economy might be damaged by the conflict, including a likely global recession if the war persisted until 2027. Those scenarios are gone from the update.

"We still have uncertainty. We still have risks that we think are on the downside," said Petya Koeva Brooks, deputy director of the IMF's research division. "But we have seen a lot of resilience."

The fund's forecast, widely used by businesses and investors as a benchmark, now calls for the global economy to grow by 3% in 2026, down from 3.1% projected in April and 3.5% in 2025. Fueled by strong AI investment, growth is expected to pick back up to 3.4% in 2027, better than the 3.2% previously forecast.

That overall figure, though, masks divergence among individual economies as the Iran war and the AI boom create winners and losers.

As an artificial-intelligence powerhouse that also exports more oil than it imports, the U.S. will likely hold up well, the IMF projects. High growth in federal spending is another tailwind. The IMF is forecasting U.S. growth of 2.3% this year, unchanged from April's projection, and 2.2% next year, up from 2.1% in the previous forecast.

The ceasefire had taken the edge off the spring's spike in energy costs, but the IMF still expects oil prices to average about 32% higher this year than in 2025. That will drag on energy importers from India to Europe, while leaving oil producers like the U.S. on a stronger footing. Oil prices have risen since Tuesday in the wake of renewed hostilities, though they remain well below their wartime peaks.

Higher energy prices and weak consumer confidence are both weighing on the euro area, where growth is projected at just 0.9% this year, down from 1.1% forecast in April.

Meanwhile, computing investment is boosting growth along a supply chain that stretches from Taiwan, Korea and China to Silicon Valley. Those AI winners can count on continued economic momentum this year, the IMF expects.

In explaining why its downbeat scenarios in April didn't come to pass, the IMF pointed to unexpected flexibility in energy markets that prevented a bigger price crunch. On the demand side, China has drawn on ample oil reserves to reduce imports. On the supply side, countries outside the Middle East increased production, helping fill the shortfall created by the closure of the Strait of Hormuz.

"We saw a lot of flexibility and margins of adjustment that would have been hard to predict," Koeva Brooks said.

Still, the full force of high energy prices hasn't been felt yet, because some countries have been drawing on oil shipped before the conflict began.

Alongside the war's effects, developments on the AI frontier will determine how the global economy performs in the years ahead, the IMF said. If demand for computing surges further, or if the technology begins helping businesses improve productivity, growth prospects could rise.

On the other hand, if the technology's value doesn't live up to its hype, an abrupt investment pullback could trigger steep declines in financial markets and an economic downturn that extends beyond the tech sector, the IMF said.

Write to Matt Grossman at matt.grossman@wsj.com

(END) Dow Jones Newswires

July 08, 2026 11:20 ET (15:20 GMT)

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