The International Monetary Fund warned on Wednesday that the global economy is projected to slow down significantly as commodity prices rise.
The leading cause of the economic slowdown is the United States’ war with Iran, which began in late February, per IMF. The prolonged conflict resulted in higher energy costs and increased inflation.
Last year, global output grew by 3.5%, the fastest growth since 2021, when the economy saw a significant rebound from the COVID-19 pandemic. The output for 2026 is projected to slow down to 3%, according to the report.
Despite the gloomy outlook, economists have been surprised that the impact was not worse, IMF said in its report, “The global economy as a whole has, so far, weathered the shock from the war better than feared.”
The global economy’s surprising resilience can partially be explained by the boom in artificial intelligence, Petya Koeva Brooks, deputy director of the IMF’s Research Department, told Bloomberg on Wednesday.
The estimate may be volatile
Although optimism for growth soared last month after the U.S. announced a ceasefire with Iran, recent strikes in the Strait of Hormuz have cast uncertainty on the projection.
The report was finalized on June 10, with the assumption that the Strait of Hormuz will reopen this month and will return to prewar levels by early next year.
Speaking at the NATO summit this week, President Donald Trump said of the ceasefire with Iran, “I think it’s over.”
If the Strait of Hormuz closes again, says Brooks, the estimates may be negatively impacted.
“There is still a lot of uncertainty and risks are very high,” Brooks said. “Overall, we do see risks on the downside with the escalation of the conflict being a primary driver of those downside risks.”
Some have continued reason for optimism
Part of the reason the impacts from the war haven’t been as drastic as some estimated is due to AI’s boost to the economy.
“We do think that the global outlook is shaped by the forces of the war shock and also AI,” said Brooks.
According to McKinsey & Company, annualized sales for AI companies have reached $170 billion and have exceeded the growth rates of the internet.
Another reason for hope may be that IMF has fixed its projections on estimated oil prices of $89 a barrel for the year. Although they are rising, prices remain closer to $80 a barrel.
Other factors that are difficult to predict could also shape production to the benefit of consumers.
“Another important factor is that production increased outside the Gulf region and oil came down in Asia,” Brooks said.
Some of the effects on the economy have also been mitigated with different tools, such as oil reserves. However, going forward, IMF indicated it was unsure if those tools will continue to be effective.
