In this case, the world’s GDP growth falls from an expected 3.4% in 2026 to 3.1% in 2026.
“The reference forecasts incorporate the impact of the war, based on the assumption that the conflict will last for a few more weeks and a recovery will then gradually take hold, such that the disruptions fade and production and exports from the region normalise by mid-2026,” the IMF said.
The relatively modest downward revision to global growth was because of continued tailwinds partially offsetting the negative shocks from the conflict, including lower tariffs and lower interest rates.
“Before the war, the global economy was performing better than expected, laying the groundwork for upward revisions to the forecast,” the IMF said.
Prices for energy commodities are expected to rise by 19% in 2026, as opposed to the small decline projected in the October 2025 World Economic Outlook.
Oil prices were expected to increase by 21.4% on account of disruptions to production and transportation in the Middle East.
That would correspond to the average petroleum spot price index, averaging US$82 per barrel.
Natural gas prices were expected to be affected more than oil prices, because of the technical complexity of restarting production and the comparatively lower level of reserves to fall back on.
Food prices were expected to increase as well, more than projected in October 2025, due to higher energy and fertiliser prices, disrupted shipping routes and increased transport costs.
The IMF forecasts New Zealand to achieve economic growth of 2.1% in 2026, compared to a forecast of 2.2% in its October outlook.
Local economists have taken a more pessimistic view.
ASB’s latest forecasts see annual growth for 2026 reduced by around 1.6 percentage points, from 2.9% to 1.3%.
Westpac has revised down its full-year growth for 2026 to 1.9%.
The IMF doesn’t break out forecasts for New Zealand based on its gloomier scenarios.
But it is safe to assume our growth would be lower, as these scenarios are considerably worse.
Both the “adverse scenario” and “severe scenario” assume a more protracted conflict and more disruption to oil, gas and fertiliser supplies.
The IMF’s “adverse scenario” assumes oil prices increase by 80% this quarter, compared with the January 2026 baseline.
The scenario sees prices falling back to 20% above the baseline in 2027, with the increase dissipating in 2028.
That implies an average petroleum spot price of about US$100 per barrel in 2026 and about US$75 in 2027.
It was trading at US$60 in January.
Global growth would drop by 0.8% to 2.5%.
In the severe scenario, the shock to commodity prices is more severe and persistent, with oil prices increasing by 100%, starting in this quarter and relative to January 2026, but also staying at that level in 2027, before dissipating in 2028.
That corresponds to an average petroleum spot price index of about US$110 per barrel in 2026 and about US$125 in 2027.
In this scenario, gas prices for Europe and Asia increase by 200% over the same period, and food commodity prices increase by 5% in 2026 and 10% in 2027.
In both the adverse and severe scenarios, the monetary policy response should be geared toward containing inflationary pressures rather than stabilising output, the IMF says.
In other words, it believes central banks would need to lift interest rates.
“Under the severe scenario, the effects on global growth are substantial and longer-lasting,” the IMF said.
Global growth would be reduced by 1.3 percentage points in 2026 to 2.1%.
“This would mean a close call for a global recession, which has happened only four times since 1980, with the latest two occasions corresponding to the Global Financial Crisis and the Covid-19 pandemic,” the IMF said.
Global growth, including developing nations, is typically a higher number than we see in developed nations and the IMF uses sub-2% global growth as an informal marker of recession-level conditions.
In both scenarios, the impact on emerging markets would again be greater than that on advanced economies, the IMF said.
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
Stay ahead with the latest market moves, corporate updates, and economic insights by subscribing to our Business newsletter – your essential weekly round-up of all the business news you need.