The global economy is slowing in 2026, with rising energy prices, geopolitical tensions and tighter financial conditions weighing on growth, according to the International Monetary Fund, but the impact is expected to fall unevenly across countries.
The IMF said global growth is now projected at 3.1% in 2026, down from earlier expectations of 3.3%, after conflict in the Middle East disrupted energy markets and trade flows.
“The war has stopped that momentum,” IMF Chief Economist Pierre-Olivier Gourinchas said, adding that inflation is expected to rise to 4.4% this year.
Under more adverse scenarios, the outlook deteriorates further. The Fund warned growth could fall to 2.5% or even 2%, levels typically associated with global crises.
“Downside risks are clearly very elevated,” the IMF said.
Energy shock drives slowdown
At the center of the slowdown is a surge in commodity prices, particularly energy.
“Higher commodity prices are a textbook negative supply shock,” the IMF said, noting they are “raising prices and costs, disrupting supply chains, and eroding purchasing power.”
Oil, gas and fertilizer prices have all risen sharply, feeding into inflation and increasing production costs across economies. The IMF warned these pressures could trigger broader effects if businesses and workers attempt to offset losses, risking “wage-price spirals.”
The disruption of key trade routes, including the Strait of Hormuz, has amplified the shock. The IMF said the conflict has “raised the prospect of a major energy crisis” if supply constraints persist.
Impact uneven across countries
While the slowdown is global, the IMF stressed that its effects are not evenly distributed.
“It will be highly uneven across countries,” Gourinchas said, warning that “commodity-importing low-income countries” and emerging markets are among the hardest hit.
Low-income energy importers face the most immediate pressure due to rising import costs and limited fiscal capacity.
“Low income energy importers are highly exposed, especially those with pre-existing vulnerabilities and limited buffers,” the IMF said.
In contrast, some energy-exporting countries may benefit from higher prices, though gains are often offset by broader global uncertainty and volatility.
Debt and financing pressures rising
The slowdown is also tightening financial conditions, increasing borrowing costs and reducing capital flows to developing economies.
The IMF warned that financial markets could see “higher risk premia, capital flight, [and] dollar appreciation,” all of which tend to hit emerging markets harder.
At the same time, global debt levels are rising. Public debt is projected to approach 100% of global GDP by the end of the decade, limiting governments’ ability to respond with fiscal support.
IMF Managing Director Kristalina Georgieva said more than a dozen countries are already seeking financial assistance due to rising energy costs and supply disruptions, with funding needs estimated at $20 billion to $50 billion.
Inflation hits households unevenly
Rising prices are also affecting households differently across regions.
In many developing economies, higher food and energy costs are driving inflation and reducing real incomes. The IMF warned that disruptions in fertilizer supply are worsening food insecurity, particularly in vulnerable countries.
In Asia, where energy imports account for around 2.5% of GDP, the IMF said the shock is expected to raise inflation and strain external balances.
Growth in the region is forecast to slow from 5% in 2025 to 4.4% in 2026, reflecting these pressures.
Limited policy options
Policymakers face a narrow path between controlling inflation and supporting growth.
“This is a negative supply shock, and no central bank can influence global energy prices on its own,” the IMF said.
The Fund advised governments to avoid broad subsidies and instead provide “targeted, temporary” support to vulnerable populations.
Central banks, meanwhile, are urged to remain cautious but ready to act if inflation expectations rise.
Outlook remains fragile
The IMF emphasized that the global outlook depends heavily on the trajectory of geopolitical tensions and energy markets.
“Our report presents three scenarios,” the Fund said, ranging from moderate disruption to prolonged instability, with significantly different outcomes for growth and inflation.
Even under the baseline scenario, some economic damage is unavoidable.
“The economic impact will depend on the duration and scale of the conflict and could be worse,” Gourinchas said.
Who pays the price?
The data points to a consistent pattern: while the slowdown is global, its costs are concentrated.
Countries with strong fiscal positions and diversified economies are better able to absorb shocks. Those reliant on imports, external financing or a narrow economic base face sharper trade-offs.
As the IMF put it, the current shock is not only slowing growth, but “eroding purchasing power” and tightening financial conditions at the same time.
In a slowing global economy, the question is less about whether the impact will be felt, and more about where it will be felt most.
