Global economic growth is expected to be less than it would have been if not for the war in Iran.

Released this morning with the ominous title of Global Economy in the Shadow of War, the International Monetary Fund (IMF) has downgraded its outlook for global growth in 2026 from 3.3% in its January forecast to 3.1%. Global inflation is now expected to average 4.4%, up from 3.8% in the previous forecast and about a percentage point higher than before the pandemic.

Slower global growth adds to the headwinds facing Canada created by U.S. tariffs. As a net energy exporter, Canada is somewhat shielded from the negative economic effects of the war, but it will still feel them, especially in the form of higher inflation and elevated uncertainty. The IMF’s forecast for Canada’s economic growth this year is 1.5%, down from 1.6% in the January outlook.

According to the IMF, the negative effects of the conflict in the Middle East will vary significantly across countries, “with lower-income commodity-importing economies being hit particularly hard through higher energy and food prices as well as foreign exchange depreciation.”

The forecast, moreover, comes with a large caveat in that it assumes the war is short-lived with the average petroleum spot price (a composite of the Brent, WTI, and Dubai benchmarks) averaging $82 per barrel this year.

As such, the report includes an “adverse scenario” in which a longer shutdown of the Strait of Hormuz and further damage to drilling and refining facilities leads to a sharper increase in energy prices with an average petroleum spot price index of about $100 per barrel in 2026. In this scenario, global growth falls to 2.5% and inflation rises to 5.4%.

It also includes a “severe scenario” in which energy supply dislocations extend into next year with global growth managing only a 2% increase (a growth rate below 2% is considered a global recession) while inflation averages 5.8% this year and 6.1% in 2027. In this scenario, the average petroleum spot price index comes in at $110 per barrel in 2026 and $125 in 2027.

The IMF is also concerned that renewed trade tensions or a reversal of the ongoing AI boom could significantly weaken growth.

On the upside, global growth will benefit if AI-related investment translates into strong productivity gains or if there is a sustained easing in trade tensions.  

Answer to the previous trivia question: The Colorado Avalanche have secured first place in the NHL for the 2025-26 season.

Today’s trivia question: The International Monetary Fund was created at the 1944 Bretton Woods Conference and came into formal existence in 1945. Where is Bretton Woods?