The New York Times reports:

The global economy is set to slow sharply in 2026 after the war with Iran disrupted energy supply chains and triggered a fresh bout of inflation, the International Monetary Fund warned on Wednesday.

The forecasts reflect the damaging toll from the decision by the United States and Israel to attack Iran this year. Those attacks spurred Iranian retaliation on energy infrastructure in the region, destabilizing a world economy that had already been rocked by the Covid-19 pandemic and Russia’s war in Ukraine.

Global output growth is poised to fall to 3 percent in 2026 from 3.5 percent last year, according to an update for the I.M.F.’s World Economic Outlook. That is slightly slower than the fund’s April projection of 3.1 percent growth, underscoring the protracted nature of the conflict.

The forecasts remain subject to considerable uncertainty. Attacks on tankers trying to transit the Strait of Hormuz this week have raised doubts about the durability of the recent cease-fire between the United States and Iran, and on Tuesday the United States rescinded a waiver on sanctions that would have allowed more Iranian oil to be sold on global markets.

President Trump cast doubt on the truce at a NATO meeting in Turkey on Wednesday when he said, “I think it’s over.”

Shipping traffic through the strait was obstructed for months, sending energy prices higher and pushing up consumer prices around the world. The I.M.F. expects global inflation will rise to 4.7 percent in 2026 from 4.1 percent in 2025 because of elevated commodity prices.

Although the 2026 outlook is slightly darker, the I.M.F. said the global economy was proving to be relatively resilient. Global growth in the first quarter of the year was stronger than projected, as renewable energy helped blunt the effect of higher oil prices and investments in artificial intelligence powered output.

“The global economy as a whole has, so far, weathered the shock from the war better than feared,” the I.M.F. economists wrote in the report.

Oil-producing countries in the Middle East have been hit hardest by the war and are expected to face sharp contractions this year. [Continue reading…]