Iran Still in Turmoil: IMF Predicts Economy to Contract 5.4% This Year

The International Monetary Fund (IMF) has revised its economic growth projection for Iran upwards, though the country’s economy is still forecast to remain in negative territory, contracting by 5.4% in 2026 due to the war with the United States and Israel. The IMF projected the -5.4% figure in its July 2026 World Economic Outlook, a 0.7 percentage point improvement from its April forecast of -6.1%. ‘Growth in Iran for 2026 has been revised up by 0.7 percentage point, relative to April, to -5.4%, reflecting better-than-expected oil exports in March and April and some easing of the country’s export restrictions, and revised down by 0.3 percentage point for 2027 because of a less significant contraction,’ the IMF stated in its report. The IMF noted that commodity importers in the Middle East and North Africa are expected to remain relatively resilient to negative trade balance shocks from higher energy and food prices, while countries in the Caucasus and Central Asia continue to experience favourable growth momentum. The IMF projects global growth of 3% in 2026, down from an average of 3.5% in 2024-2025. The fund attributed the slowdown to the lingering effects of the war in the Middle East. ‘The moderate slowdown reflects the impact of the war in the Middle East,’ the IMF said. The IMF sees risks to the outlook as more balanced than in April but still tilted to the downside. The possibility of renewed conflict in the Middle East looms and could prolong commodity price volatility, further threaten supply chains, raise prices, and tighten financial conditions. ‘Trade fragmentation could increase, potentially harming output and raising prices,’ the IMF explained. However, the IMF noted that the global economy has so far weathered the shocks from the war better than feared. A larger oil price spike was avoided thanks to inventory drawdowns, increased production outside the Gulf, and measures to curb oil demand. Furthermore, although financial conditions tightened sharply in April, they have since eased and remain supportive by historical standards. ‘Our forecast now assumes that the Strait of Hormuz will begin to reopen in mid-July, with conditions returning to pre-war normal by March 2027. Commodity price assumptions are based on market prices as of 10 June, implying an average oil price of $89 per barrel for 2026,’ the outlook stated. ‘At its core, we expect a V-shaped recovery, with weaker growth this year compared to our pre-war forecast, followed by a rebound next year.’