IMF cuts emerging economies' growth estimate as war darkens outlook

New York: The IMF on Tuesday lowered its 2026 growth forecast for emerging market and developing economies to 3.9 per cent from its view of 4.2 per cent in ⁠January, with higher energy and food costs and uncertainty from the war in the Middle East expected to hurt more vulnerable, commodity-importing ⁠countries the hardest.

The downgrade is sharper than for advanced economies, underscoring that much of ‌the developing world remains more exposed to oil ​shocks, currency weakness and swings in investor sentiment.

The global lender said the war's impact would vary widely and depend on a country's proximity to the conflict, trade and financial links, exposure to remittances and energy dependence.

"The current hostilities in the Middle East pose immediate policy trade-offs: between fighting inflation and preserving growth and between supporting those affected by the rising cost of ​living and rebuilding fiscal buffers," the ⁠IMF said in its World Economic Outlook update.

It said the countries most at risk are commodity-importing emerging economies with existing weaknesses where higher import bills, weaker currencies and reduced capital inflows could feed inflation and intensify financing stress. The softer outlook still rests on a relatively benign assumption.

The IMF's reference forecast is based on a ⁠global scenario in which ‌the conflict remains contained and relatively short-lived, with disruption beginning to ease by the middle of 2026. If the war broadens, or keeps oil and gas prices elevated for longer, the ‌damage to emerging economies would deepen further, according to the IMF.

The broad emerging-markets aggregate also masks sharp regional divergence. Emerging and developing Asia is ⁠still expected to post the fastest growth among major developing regions, but growth there is seen slowing to 4.9 per cent in 2026 from 5.5 per cent in 2025, before easing further ‌to 4.8 per cent in 2027.

China's 2026 growth forecast was cut to 4.4 per cent, 0.1 point lower than ‌the January forecast, as lower U.S. tariff rates and stimulus measures offset the impact from the ‌Middle East war. India was a notable exception, as its 2026 growth forecast ticked up by 0.1 point ‌to 6.5 per cent, with tariff relief and momentum carried over from 2025 more than offsetting the impact of costlier energy.

Middle East and Central Asia face biggest impact of war

The largest economic impact will be, as expected, concentrated in nations closer to the conflict. The IMF ⁠slashed its 2026 forecast ⁠for the Middle East and Central Asia by 2.0 points to 1.9 per cent, one of the biggest revisions in the report, before a projected rebound to 4.6 per cent in 2027 under its baseline scenario. For the narrower Middle East and North Africa grouping, the 2026 growth forecast was cut by an even steeper 2.8 points to 1.1 per cent.

Saudi Arabia's 2026 growth forecast was lowered by 1.4 points to 3.1 per cent. Iran's outlook saw one of the largest country-level revisions, with 2026 growth cut by 7.2 points from January to -6.1 per cent. Growth in Egypt, a commodity importer, is expected to slow ​to 4.2 per cent in 2026. Sub-Saharan Africa's growth is forecast to slow more modestly to 4.3 per cent in 2026 from ​4.5 per cent in 2025, though the IMF said ​oil importers without a strong resource cushion would be under greater strain.

Growth in Latin America and the Caribbean was revised higher by 0.1 point to 2.3 per cent ​for 2026, helped by exporters such as Brazil, where higher oil prices provide some relief.