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The International Monetary Fund has warned that the economic fallout from the Middle East conflict is still clouding the global outlook, with energy disruptions, rising public debt and stalled disinflation emerging as key threats. While the world economy is projected to grow by around 3% in 2026, the IMF has cautioned that the recovery remains uneven and vulnerable to another surge in fuel prices.
The warning comes amid renewed disruption around the Strait of Hormuz, a major global energy transit route that previously handled roughly one-fifth of world oil supplies. Brent crude has moved above $100 a barrel as tensions involving Iran and the United States affect shipping in the region, reviving concerns over a fresh energy-led inflation shock.
IMF Managing Director Kristalina Georgieva said the global economy had managed to absorb the initial impact of the energy supply shock better than expected through reserve use, alternative energy sources and demand-management measures. However, she stressed that “the energy shock is not over,” pointing to continued restrictions around the Strait of Hormuz, the need to replenish strategic oil and gas reserves, higher energy demand linked to artificial intelligence infrastructure and approaching winter demand in the Northern Hemisphere.
The IMF’s July World Economic Outlook update retained its global growth forecast of about 3% for 2026, followed by a projected 3.4% expansion in 2027. However, the Fund said the overall figure conceals sharp differences among economies. Countries that rely heavily on imported fuel and have limited fiscal capacity are likely to face greater strain as rising energy costs weaken household purchasing power, increase import bills and put pressure on government budgets.
Inflation remains a major concern. The IMF has said the global disinflation process that began in early 2024 has stalled, largely because of higher energy and food prices. Global headline inflation is now expected to rise from 4.1% in 2025 to 4.7% in 2026, before easing to 3.9% in 2027. A prolonged oil-price shock could raise transport, manufacturing, food and electricity costs, forcing central banks to maintain higher interest rates for longer.
Government finances are also under growing pressure. Global public debt reached nearly 94% of global GDP in 2025 and is projected to touch 100% by 2029, a level last seen in the aftermath of World War II. The Middle East conflict could intensify the burden as governments face calls to cushion households and businesses from costly fuel and energy bills.
The IMF’s outlook now hinges on whether conflict-related disruptions ease and energy flows normalise. A prolonged crisis could create a difficult combination of slower global growth, elevated inflation and tighter financial conditions.
