Reshma Kapadia

The International Monetary Fund on Wednesday said the global economy navigated the Iran war better than anticipated. 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 raising its 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 also said the risk outlook is more balanced than it was in April, although risks remain tilted to the downside.

Though economists said the economy overall weathered the war shock better than feared and the immediate fallout has been limited, they warned that the full ripples could still take time to play out. They also cautioned that tensions remain elevated after Iran attacked a ship in the Strait of Hormuz on Tuesday.

"Transmission is still in the early stages -- commercial and strategic destocking have provided temporary relief from reduced energy flows, whereas forward-looking indicators such as supply- chain pressure and manufacturing purchasing managers' indexes point to softer momentum ahead -- and some countries are experiencing more strain than others," the economists wrote in the outlook.

Energy prices, for example, are still 25% higher than they were before the war, though they remain below the $82 a barrel the IMF assumed in its April outlook. The pain has been uneven. Since the war began, retail gasoline prices across emerging Asia are up 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.

Underneath the relatively sanguine global outlook, the IMF highlighted 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 as renewables account for a larger share of energy production. Countries rolling out fiscal support to cushion the impact of the war and rising energy costs also helped.

The biggest boost to global growth, however, came 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, 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 09:00 ET (13:00 GMT)

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