IMF economists warned three months ago that the prolonged conflict with Iran could push the global economy into a recession. However, the ceasefire reached in June largely removes that risk, according to IMF's latest quarterly economic forecast released on July 8. The IMF's assessment shows the four-month conflict has only modestly weakened global growth and left little long-term damage.
The initial IMF outlook in April 2026 outlined scenarios in which the war could deepen and potentially trigger a global recession if the conflict persisted until 2027. Those scenarios have now been removed from the latest update as the ceasefire reduces near-term risk from the Iran conflict.
The IMF's new forecast projects global growth of 3.0% in 2026, down from 3.1% in April and below 3.5% in 2025. With strong investment in AI, global growth is expected to recover to 3.4% in 2027, higher than the previous forecast of 3.2%.
The ceasefire has helped to cool part of the energy price surge that occurred in the spring. Oil prices have rebounded since renewed clashes but remain well below wartime highs. The higher energy prices are expected to weigh on energy-importing economies such as India and many European countries, while oil exporters like the United States could benefit relatively. Oil prices are projected to average around 32% higher in 2026 than in 2025.
High energy prices and weakening consumer confidence are weighing on the euro area, where growth is projected at 0.9% this year, down from 1.1% forecast in April. Investment in AI computing infrastructure is pushing growth along the supply chain, from Taiwan, Korea and China to Silicon Valley. The IMF notes that economies benefiting from AI are expected to sustain positive growth this year.
The IMF explains that the negative-scenario explanations from April did not materialize because energy markets proved more adaptable than anticipated, helping avert a more severe oil shock. On the demand side, China has used ample oil stocks to curb imports. On the supply side, non-Middle East producers have increased output to offset the Hormuz disruption.
We are witnessing a high degree of market adjustment and resilience — something that was hard to forecast earlier,
said Petya Koeva Brooks, Deputy Director of IMF Research. The IMF notes that the full impact of high energy prices has not yet been reflected, as some countries still rely on oil shipped before the conflict began. Beyond the war, the evolution of the AI race will be the decisive factor for global growth in the coming years. If computing demand stays strong or AI actually helps firms raise productivity, the global growth outlook could improve. Conversely, if the actual value of AI does not meet current expectations, a wave of investment cuts could trigger a broader market downturn and a wider economic recession beyond the tech sector.
