The mood in the International Monetary Fund’s Washington corridors has darkened. Only months ago, officials spoke with cautious optimism about global growth. Now they convene under the shadow of war, expecting forecasts to be cut rather than raised.
The fund is preparing to downgrade its outlook for the world economy, reflecting the cascading effects of the conflict in Iran. What began as a geopolitical rupture has become an economic shock, transmitted through energy markets, supply chains and confidence.
Kristalina Georgieva, the IMF’s managing director, has already set the tone. Absent the shock, she suggested, the institution would have upgraded its projections. Instead, even its most hopeful scenario now implies a downgrade. The reasons are familiar: damaged infrastructure, disrupted supply chains, eroding confidence and longer-term scarring effects. “They’re already baked,” she said.
For policymakers gathering in Washington, the question has shifted—from how to sustain growth to how to cushion the slowdown. Finance ministers and central bankers must now manage a world in which geopolitical instability feeds directly into macroeconomic fragility.
Britain’s outlook is particularly weak. The IMF is expected not only to trim its growth forecast but also to warn of rising inflationary pressures.
The fund’s World Economic Outlook sketches a range of outcomes. Its most optimistic “reference scenario”—which assumes a short-lived conflict—puts global growth at 3.1% in 2026, down 0.2 percentage points from its January forecast. Oil prices, in this case, average $82 a barrel, easing from recent levels near $100 for Brent crude. Without the Middle East shock, the IMF says it would instead have raised its forecast to 3.4%, helped by strong technology investment, lower interest rates, softer American tariffs and fiscal support in some economies.
In an “adverse” case, with a longer conflict keeping oil near $100 this year and $75 in 2027, global growth would fall to 2.5%. A “severe” scenario—featuring prolonged conflict, higher oil prices and financial-market disruption—would push growth down to 2.0%.
The prognosis is straightforward. The longer the war persists, the weaker the world economy becomes.
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