IMF expects world economy to grow a sluggish 3% this year, weighed down by Iran war but helped by AI

WASHINGTON (AP) — The International Monetary Fund on Wednesday modestly downgraded its outlook for the world economy this year, citing the energy shock caused by the Iran war. But the fallout from the conflict is being partially offset by booming investment in artificial intelligence and other technologies.The IMF now expects the global economy to expand by a sluggish 3% in 2026, down from 3.5% last year and from the 3.1% it had forecast for this year back in April. Iran responded to U.S. and Israeli attacks Feb. 28 by shutting down the Strait of Hormuz, through which a fifth of the world’s crude oil and natural gas passes. Energy prices soared, squeezing businesses and consumers. The IMF now expects oil prices to be up nearly 32% this year and for global consumer prices overall to increase 4.7% in 2026. That would be up from 4.1% in 2025 and would mean that two years of progress against inflation has stalled.

Countries that produce and export their own energy and that benefit from AI investment are insulated from the war’s economic damage. Among them is the United States. The IMF expects the U.S. economy — the world’s largest — to grow a solid 2.3% this year, up from 2.1% in 2025 and unchanged from the April forecast. President Donald Trump’s 2025 tax cuts, big gains in productivity and a strong stock market are also giving the American economy a lift.