The IMF’s forecast assumes oil prices will rise by 21.4% in 2026 to average around $82 per barrel. (File Photo)
The International Monetary Fund (IMF) on Tuesday said the war in West Asia could turn into “the largest energy crisis in modern times” as it cut its global growth forecast for 2026 by 20 basis points (bps) to 3.1%, with developing economies bearing the brunt of the downward revisions. India, meanwhile, received a minor bump-up of 10 bps to its GDP growth forecast to 6.5% for 2026-27.
Iran’s economy is expected to shrink by 6.1% in 2026 as against a growth of 1.1% forecast in January.
“Absent the war, global growth would have been revised upward. Indeed, forecasts based on pre-conflict assumptions would have shown a slight upward revision of 2026 growth relative to the January WEO Update, by 0.1 percentage point (10 bps), to 3.4%,” the IMF said in its flagship World Economic Outlook report. “Hence, the downward revision for 2026 largely reflects the disruptions from the conflict in the Middle East, partly offset by carryover from recent strong data and reduced tariff rates,” it said, adding that risks “are firmly on the downside”.
The release of the World Economic Outlook report comes amid the IMF and World Bank Group’s Spring Meetings in Washington DC, US. The meetings, which began on Monday, will end on Saturday.
The IMF’s forecast assumes oil prices will rise by 21.4% in 2026 to average around $82 per barrel.
The IMF expects global growth to edge up to 3.2% in 2027. Inflation, meanwhile, is seen rising to 4.4% this year before declining to 3.7% in 2027. In January, the IMF had predicted global inflation to average 3.8% and 3.4% in 2026 and 2027, respectively. On Tuesday, it warned that central banks should be “prepared to act clearly and decisively” as per their mandates and “guard against prolonged supply shocks destabilising inflation expectations”.
The US and Israel’s war against Iran is in its seventh week and shows no sign of ending despite multiple temporary ceasefires and the first round of peace talks hosted by Pakistan last week, which failed. The rise in energy prices and fuel shortages due to Iran’s closure of the key waterway of the Strait of Hormuz and the hit to Gulf nations’ energy infrastructure is leading to higher inflation globally and hurting growth.
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India’s GDP, meanwhile, is seen growing 6.5% in both 2026-27 and 2027-28. This is slightly higher than the IMF’s January forecast of 6.4% for both the years, but lower than the Reserve Bank of India’s projection of 6.9% for the current fiscal.
The marginal upward revision for India comes after stronger-than-expected growth in 2025, with the economy expanding by 8.4% and 7.8% in the final two quarters of the year. Further, the IMF sees the fall in US tariffs for India to 10% from 50% outweighing the adverse impact of the war in West Asia.
Inflation, on the other hand, is expected to average 4.7% in 2026-27 and 4% in 2027-28. This is broadly in line with the RBI’s expectation of 4.6% for this year.
The IMF said on Tuesday that its forecasts assume the war will go on for a “few more weeks” and that its disruptions will fade by the middle of 2026. However, it admitted that “odds of a range of outcomes – from ceasefire to serious escalation of hostilities – shift by the day”. As such, the multilateral agency also considered ‘adverse’ and ‘severe’ case scenarios.
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In the ‘adverse’ scenario – which assumes a crude oil price of around $100/bbl in 2026 and $75/bbl in 2027, among other variables – global growth is seen falling to 2.5% this year and to 3% in 2027. Inflation, on the other hand, would rise to 5.4% and 3.9%.
Meanwhile, the ‘severe’ case scenario assumes a crude oil price of around $110/bbl in 2026 and $125/bbl in 2027. This would lead to world growth falling to around 2% in 2026, implying “a close call for a global recession”. In 2027, growth would edge up to 2.2%. Inflation would be much higher: 5.8% in 2026 and 6.1% in 2027.
“In both scenarios, the impact on emerging markets would again be greater than that on advanced economies,” the IMF warned.
