IMF Cuts Global Growth to 3% as Strait of Hormuz Reopening Assumption Clashes with Renewed US-Iran Hostilities

The International Monetary Fund (IMF) on Wednesday lowered its global growth forecast for 2026 by 10 basis points to 3%, based on the assumption that the Strait of Hormuz begins reopening in mid-July and conditions return to prewar state by March 2027. The revision comes even as United States President Donald Trump declared the ceasefire with Iran a ‘waste of time’ and ordered strikes on Iranian military targets.

The IMF’s quarterly update to its World Economic Outlook, released at 6:30 pm India time, was prepared before the latest escalation. The multilateral agency noted that ‘the most imminent risk to the baseline forecast stems from developments in the Middle East,’ warning that renewed conflict could drive up commodity prices, extend volatility, and strain exchange rates.

Tensions escalated after merchant ships were attacked in the Strait of Hormuz, prompting the US to hit over 80 Iranian targets and revoke a license allowing Iranian oil sales. Trump, speaking in Ankara, Turkey, said the ceasefire was ‘just a waste of time,’ effectively ending the brief truce that had calmed global markets since the conflict began on February 27.

The initial ceasefire had helped ease energy prices: India’s crude oil basket, which surged 66% from February to $114.48 per barrel in April, cooled to $68.62 by July. However, renewed hostilities have weighed on financial markets, with benchmark Indian equity indices falling more than 2% on Wednesday.

The IMF also trimmed India’s GDP growth forecast for 2026-27 by 10 basis points to 6.4%, lower than the Reserve Bank of India’s 6.6% projection. ‘India remains among the fastest growing major economies, with growth projected at 6.4%, supported by strong momentum in private consumption and services activity,’ the IMF said, raising its 2027-28 forecast to 6.7%.

China’s growth forecast was raised by 20 basis points to 4.6% for 2026 and 10 basis points to 4.1% for 2027. Brazil’s 2026 growth was revised up by half a percentage point to 2.4%. In West Asia, Saudi Arabia’s 2026 growth was cut sharply from 3.1% to 1.7%, while Iraq, Kuwait, and Qatar are expected to see sharp contractions followed by double-digit expansions in 2027. Iran’s economy is projected to shrink by 5.4% in its 2026 fiscal year.

The IMF noted that the world economy has weathered the conflict ‘better than feared,’ with global growth slowing only modestly from 3.5% in 2024-2025. The hit from the conflict was partly offset by accelerated demand in the global technology cycle driven by advances in artificial intelligence. However, energy prices remain about 25% above prewar levels, and global consumer prices are expected to rise 4.7% in 2026, 30 basis points higher than previously forecast.