IMF Expects World Economy to Grow 3%   07/09 06:04

   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.

   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. The fund expects worldwide growth to rebound to 3.4% next year.

   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.

   The IMF forecasts assume that the Strait of Hormuz reopens later this month 
-- even though U.S. strikes on Iran resumed and President Donald Trump declared 
Wednesday that a ceasefire with Iran was over. They also assume that commerce 
through the strait returns to normal by next March.

   "The world economy has weathered the shock from the war better than feared," 
Petya Koeva Brooks, deputy director of the IMF's research department, told 
reporters Wednesday. The economic damage from the energy shock has been limited 
partly because countries could draw on existing oil stockpiles and because 
oil-exporting countries outside the Persian Gulf stepped up production.

   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.

   The 21 European countries that share the euro currency, hit hard by higher 
energy prices, are collectively forecast to grow just 0.9% this year, down from 
1.4% in 2025.

   China, the world's No. 2 economy, is expected to expand 4.6% this year, down 
from 5% in 2025 but a bit faster than the IMF had expected in April. Weighed 
down by higher energy prices and a property market collapse, the Chinese 
economy is getting offsetting help from public works spending, a surge in 
high-tech manufacturing and booming exports.

   India is once again forecast to be the world's fastest-growing major 
economy, advancing at a 6.4% clip (down from a sizzling 7.7% last year) on 
strong consumer spending.

   The IMF is a 191-nation lending organization that works to promote economic 
growth and financial stability and to reduce global poverty.