IMF: World has weathered energy shock due to Middle East war better than expected 

An IMF spokeswoman said oil and gas prices remain elevated and the energy shock from the war ​is not over. Picture: Andrew Harnik/AP 

The International Monetary Fund has said the global economy ‌has weathered the energy shock caused by the war in the Middle East better than feared and global economic output is still expected to expand by about 3% in 2026, but it cautioned that risks remained high.

Julie Kozack, spokesperson for the IMF, said oil and gas prices remain elevated and the energy shock from the war ​is not over. Global debt pressures are also mounting and the disinflation process over the 2022 cost-of-living crisis has stalled.

Global inflationary ​expectations have risen but remain well-anchored over the longer run, Kozack told an IMF briefing.

"So far, despite six ⁠months of war in the Middle East, the global economy has been resilient," Kozack said, adding that the use of oil and gas reserves ​had allowed some countries to cope with energy shocks caused by the war, while others had shifted to new energy sources or acted to curb ​demand.

"We remain on track for world growth of around 3% but uncertainty, as we've been saying for quite some time, continues to remain high."

Escalation of Middle East war

The IMF in July forecast 2026 global growth at a sluggish 3%, compared with an average of 3.5% seen in 2024 and 2025, and its April forecast of 3.1%. At the time, it said ​that forecast assumed the war would wind down in mid-July, but Iran and the US have both escalated their attacks and the war has ​widened with increased military activity in Yemen.

The global lender will release an updated forecast during the annual meetings of the IMF and the World Bank in Bangkok ‌from October ⁠12-18.

Kozack said the global economy is being pulled in opposite directions by the negative energy supply shock that was driving prices of energy, fertilizers, food and other commodities sharply higher, while the AI-led technology cycle was providing a positive demand shock.

Oil and gas reserves

Risks remain high, with many countries needing to restock their oil and gas reserves, and energy demands set to rise as winter approaches in the Northern Hemisphere, she said.

Pressures are ​also mounting on global public debt, ​which is already at nearly 100% of ⁠gross domestic product — the highest level since World War Two — and is set to rise further, Kozack said. Many advanced economies have particularly high public-debt-to-GDP ratios.

The IMF is urging central bankers to stick to their ​price stability mandates, ⁠while encouraging fiscal policymakers to develop medium-term consolidation plans, she said.

"We're not in a situation where fiscal consolidation needs to take place overnight, but having a clear, laid-out plan and strategy for how deficits and debt are going to come down is very important for fiscal authorities," Kozack said.

The IMF was also ⁠urging authorities to ​focus on lifting growth prospects through structural reforms and removing "self-inflicted" barriers to growth, she ​said.

Kozack said the IMF would look closely at the impact of new US sanctions against Iran, including secondary sanctions aimed at firms in third countries that support Tehran.