A 45-day war in the Middle East has done more economic damage than a full year of Trump’s tariffs, the International Monetary Fund warned Tuesday — and the bill is falling unevenly, with Russia, India, and the United States relatively shielded while Europe, the Middle East, and energy-importing developing nations bear the brunt.
The IMF’s April World Economic Outlook, titled “Global Economy in the Shadow of War,” cut global growth to 3.1% for 2026, down from 3.3% in its January forecast and from the 3.4% expansion recorded in 2025. Without the Iran war, the IMF said it would have upgraded the 2026 outlook — the global economy was running hotter than expected heading into the year. “War in the Middle East has halted this momentum,” IMF chief economist Pierre-Olivier Gourinchas wrote.
The drag from Trump’s tariffs, by contrast, has been reduced to just 0.2 percentage points due to exemptions, rollbacks, and business adaptation — a fraction of what was feared a year ago. “What’s happening in the Gulf is potentially much, much larger,” Gourinchas told Reuters.
The losers
The sharpest downgrade goes to Iran: a 7.2-point revision to a -6.1% contraction — one of the largest single-country revisions in the IMF’s recent history. The broader Middle East and Central Asia region was cut by 2 full percentage points to 1.9%. Saudi Arabia was cut from 4.5% to 3.1%.
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Europe faces the heaviest hit outside the conflict zone, squeezed by surging natural gas prices. The eurozone is now projected to grow just 1.1% — down from 1.4% in 2025. Germany scrapes in at 0.8%, France at 0.9%, Italy at 0.5%. Japan fell to 0.7%. World trade volume growth is expected to nearly halve from 5.1% in 2025 to 2.8% in 2026.
Sub-Saharan Africa faces a quieter crisis. Deeply indebted and energy-importing, these economies lack the fiscal buffers to absorb rising fuel and fertilizer costs. The IMF cut Sub-Saharan Africa’s outlook to 4.3%. Ukraine’s central bank governor Andriy Pyshnyy said inflation hit 7.9% in March, driven by fuel costs, describing the situation as “trying to walk on a razor blade.”
The winners
Russia is the most unambiguous beneficiary. The IMF upgraded its forecast to 1.1% — a country under heavy Western sanctions from the Ukraine invasion now benefits directly from the energy price spike caused by the US-Israel war on Iran.
India was upgraded to 6.5% for both 2026 and 2027, buoyed by strong late-2025 momentum and a deal to lower US tariff rates on Indian imports. China was trimmed only slightly to 4.4%, with higher energy costs partly offset by lower US tariff rates and government stimulus.
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The US is the most insulated major advanced economy — growth was revised up to 2.3%, cushioned by tax cuts, lagging interest rate reductions, and continued AI data center investment.
The risk below the baseline
The IMF’s 3.1% forecast assumes the conflict is short-lived and energy prices rise a moderate 19% for the year. In its “severe scenario” — if energy shocks persist into 2027 and central banks are forced to raise rates — global growth drops to around 2% in 2026, and 2.2% in 2027, and global inflation reaches 5.8% in 2026 and tops 6% in 2027. At 2%, the world economy would sit at its weakest since the pandemic years, and below the threshold the IMF typically associates with effective global recession.
“Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Gourinchas wrote.
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