Worst-Case Scenarios Behind the War: IMF Says Global Economy Could Reach 2%
The International Monetary Fund (IMF) forecasts that the global economy will slow to 3.1% in 2026 and 3.2% in 2027. This projection is significantly lower than the previous estimate of 3.3% in the January 2026 World Economic Outlook (WEO) edition.
The IMF states that this represents the weakest growth compared to the 3.4% average in 2024-2025. It even claims that this growth rate is the lowest in the last 20 years (2000-2019), which averaged 3.7%. War is a key factor weighing on the downward revision of the global economy.
The IMF believes the war will subside by mid-2026. However, it acknowledges the difficulty in providing a real-time basis for a consistent set of assumptions or forecasts for projections, as stated in the April World Economic Outlook (WEO) report.
Therefore, the IMF has created a global reference forecast with scenarios where the conflict lasts longer or escalates. The likelihood of these scenarios materialising increases progressively as hostilities and related disruptions continue.
In an adverse scenario with larger and more sustained energy price increases, global growth would slow further to 2.5% in 2026, and inflation would reach 5.4%.
Meanwhile, in a more severe scenario involving greater damage to energy infrastructure in the conflict area, the impact would be even larger, with global growth slashed to just around 2% in 2026, while core inflation would be slightly above 6% in 2027.
“The impact on emerging and developing economies will be nearly twice that on advanced economies,” the IMF writes in its report on Wednesday (15/4/2026).
Upon further examination, in the less favourable scenario, global growth would be reduced by 0.8 percentage points in 2026, falling to 2.5%.
“There would also be a moderate impact of 0.2 percentage points on growth in 2027, bringing global growth to 3.0%. Inflation would be higher by 1.5 percentage points to 5.4% in 2026, and higher by 0.4 percentage points to 3.9% in 2027,” it explains.
Most of the impact on inflation and more than half of the impact on 2026 growth stem from higher energy prices. However, the more persistent effect on 2027 growth is driven by tighter financial conditions and increased inflation expectations, implying a moderate tightening in policy interest rates of 50 basis points in advanced economies in 2027 and a somewhat larger increase in emerging markets.
IMF Global Economy Scenarios
Then, in the severe scenario, the IMF sees very large and longer-lasting effects on global growth. Global growth would be reduced by 1.3 percentage points in 2026.
“This means nearly a global recession (growth rate below 2%), which has only occurred four times since 1980, with the last two instances coinciding with the global financial crisis and the COVID-19 pandemic,” it states.
The impact on growth would also be more persistent, with global growth reduced by 1.0 percentage point in 2027, to 2.2%. Inflation would be 190 basis points higher in 2026, reaching 5.8%, and 260 basis points higher in 2027, reaching 6.1%.
The rise in oil and gas prices would not only have a larger but also more sustained impact on growth, reducing it by 0.6 percentage points in 2026 and a further 0.5 percentage points in 2027.
The strengthening through inflation expectations and financial conditions would also be substantial, reducing growth by 0.7 percentage points in 2026 and 0.5 percentage points in 2027.
“This partly reflects a more aggressive monetary policy response. The federal funds rate would increase by 50 basis points in 2026 and 100 basis points in 2027, relative to the baseline,” the IMF writes.
The IMF also explains that in both scenarios, the impact on emerging markets would be greater than on advanced economies.
In the adverse scenario, growth in 2026 would be 1.3 percentage points lower in emerging markets excluding China, relative to the baseline, and 0.6 percentage points lower in advanced economies.
Meanwhile, the worst-case scenario would reduce growth in 2026 by 1.9 percentage points in emerging markets, excluding China, nearly twice the reduction in advanced economies.
“This reflects a combination of greater exposure to higher commodity prices and disruptions to energy production, larger increases in inflation expectations, and more pronounced tightening in financial conditions,” it states.
Based on the reference forecast, growth in advanced economies is projected at 1.8% in 2026 and 1.7% in 2027.
The overall impact of the Middle East conflict on growth in advanced economies is considered moderate, reducing growth by 0.2 percentage points in 2026 compared to pre-conflict estimates.
On the other hand, the IMF views positive effects on the US trade balance, stronger growth momentum, and offsetting government measures in Japan, with significant negative impacts expected only in some pure energy-importing countries, such as the eurozone and the UK.