The war in West Asia that erupted at the end of February is now threatening to derail the global economy, with the International Monetary Fund (IMF) warning that disruptions could sharply slow growth if the West Asia conflict intensifies.
In its latest World Economic Outlook, the IMF says the global economy is “threatened with being thrown off course” by the conflict, which is already acting as a “significant counterforce” to recent tailwinds through its impact on commodity markets, inflation expectations and financial conditions.
Under its reference forecast, which assumes the conflict remains limited in duration and scope with disruptions fading by mid-2026, global growth is projected at 3.1% in 2026 and 3.2% in 2027.
This is already slower than the recent pace and reflects a downward revision driven largely by the war.
The IMF notes that absent the conflict, global growth would have been revised upward, underscoring the extent to which the war has altered the outlook.
HOW BAD CAN GLOBAL GROWTH GET?
The Fund outlines a clear escalation path if the conflict persists or expands, with risks rising alongside disruptions.
In an adverse scenario involving more persistent increases in energy prices, global growth would slow to 2.5% in 2026, while inflation would rise to 5.4%.
The impact is significantly sharper in a more severe case involving damage to energy infrastructure across the Middle East.
The IMF says “global growth would be cut to only about 2% in 2026”, while headline inflation would climb to just above 6by % 2027.
Such an outcome would push the global economy close to recession territory, with weak growth and elevated inflation reinforcing each other.
ENERGY CRISIS IS IMF’S BIGGEST WORRY
The IMF warns that “downside risks dominate” and could intensify further if geopolitical tensions worsen, including the possibility of the situation turning into “the largest energy crisis in modern times.”
The impact would be uneven. Emerging market and developing economies, particularly commodity-importing countries with existing vulnerabilities, would be hit much harder, with the effect “almost twice” that on advanced economies.
While the baseline assumes the conflict remains contained, the Fund cautions that the likelihood of worse outcomes rises as hostilities continue and disruptions deepen.
Even as the global outlook weakens, India stands out. The IMF has pegged India’s growth at 6.5% for both FY26 and FY27, reflecting a slight upward revision and highlighting its relative resilience despite rising external risks.
