The International Monetary Fund (IMF) has revised down its 2026 global growth forecast for the second time this year, citing the "lingering effects" of the energy shock stemming from the US-Israel war on Iran. The global economy is now projected to grow by 3 percent in 2026, a decrease from the 3.1 percent predicted in April, according to the IMF's latest outlook released on Wednesday.

This downgrade underscores the significant economic repercussions of the ongoing conflict in the Middle East. The war has disrupted crucial energy supplies and shipping routes, impacting global trade and economic stability. The IMF's forecast suggests that while artificial intelligence (AI) driven demand is providing some counterbalance, the energy shock's effects are proving more persistent than initially anticipated.

Growth is anticipated to rebound to 3.4 percent in 2027, a rate that falls slightly below the 2024-25 average growth of 3.5 percent. Global inflation is expected to rise to 4.7 percent this year, up from 4.1 percent in 2025, before moderating to 3.9 percent in 2027, according to the Washington, DC-based financial institution.

The IMF's assessment comes in the wake of renewed US strikes on Iran following attacks on commercial ships in the Strait of Hormuz. The situation remains volatile, with US forces launching a second wave of bombing raids on Iranian targets on Wednesday, adding to the uncertainty surrounding the global economic outlook.

Petya Koeva Brooks, deputy director of the IMF’s research department, described the global outlook as being influenced by "two powerful forces pulling in opposite directions: the lingering effects of the energy shock from the war in the Middle East and a technology-driven investment boom." Brooks noted that "developments overnight illustrate the uncertainty and risks that surround the outlook."

The IMF's forecast hinges on the assumption that the Strait of Hormuz will begin to reopen in mid-July, with conditions returning to a "pre-war state" by March. However, shipping through the vital strait, which previously handled approximately one-fifth of global oil and liquefied natural gas trade, remains severely constrained by the persistent threat of Iranian attacks.

Maritime intelligence platform Kpler reported 41 verified transits in the strait on Tuesday, a stark contrast to the roughly 130 daily crossings recorded before the conflict escalated. Oil prices have surged since the US resumed strikes on Iran, with Brent crude, the international benchmark, rising as much as 7 percent after US President Donald Trump declared the US-Iran ceasefire "over."

US President Donald Trump's comments and the subsequent Pentagon strikes on Iranian targets for a second consecutive day have further fueled market volatility. Brent futures for oil experienced a significant increase, at one point exceeding $79 a barrel, highlighting the delicate balance of energy markets and the direct economic consequences of geopolitical tensions.