IMF trims global GDP forecast with dispersed war scenarios

The IMF has revised down its global growth forecast to 3.1% for 2026 from the 3.4% projected in January, according to its recent World Economic Outlook report(pdf). Without the war, the IMF says global growth would have been revised upward due to strong technology investment and resilient productivity resulting from AI adoption.

The MENA region faces the most significant downgrade of 2.8 percentage points to a 1.1% growth rate in 2026, from a previous forecast of 3.9%, highlighting a hardening regional divide amid war. Saudi Arabia’s growth forecast was slashed down to 3.1% in 2026, a major 1.4 percentage points decrease from the Fund’s January projection. However, growth is expected to pick up pace again to 4.5% in 2027, up by about 0.9 percentage points from the January forecast.

The UAE's 2026 GDP growth projection was also cut to 3.1%, down from 5% in the Fund’s October projection. Egypt’s GDP forecast was also revised down to 4.2% in 2026, a 0.5 percentage points decrease from its January projection. Meanwhile, growth is anticipated to rebound in 2027 to reach 4.8%.

Global inflation forecast was raised by 0.7 percentage points to 4.4% in 2026, citing a double-tap of higher energy and food prices.The likelihood of maintaining elevated interest rates for an extended period is now higher than indicated by the October 2025 projections.

Dark scenarios

The IMF’s “adverse scenario” sees the global economy slashed by 0.8 percentage points off global growth in 2026, dragging it down to 2.5%, while sending headline inflation to 5.4%. This scenario envisions the global economy choked by a sudden 80% spike in oil prices and a 160% surge in Asian and European gas prices.

The real danger lies in the IMF’s “severe scenario.” A global recession — will see a persistent 100% surge in oil prices in 2Q of 2026 and a 200% spike in gas prices — would choke global growth down to just below 2%, a level seen only during the global financial crisis and the pandemic. The impact is structurally deeper and more persistent, with inflation skyrocketing up to 6.1% by 2027, forcing the Fed to hike rates by 100 bps.

Credit pain to hit emerging markets

Emerging markets — excluding China — would face a violent repricing of risk in the worse scenarios. Sovereign spreads are projected to widen by up to 100 bps, while corporate premiums could jump by as much as 200 bps. This freezes the capital flows MENA firms rely on for survival.

This time is different: Central banks won’t have the luxury of cutting rates to support growth, and instead, they will be forced into mandatory tightening to anchor inflation expectations, leaving the private sector to navigate a high-cost, low-liquidity environment alone, the report said.

MARKETS THIS MORNING-

Asian markets felt the signs of diplomatic engagement by regional and global powers. Japan’s Nikkei rose around 0.6%, South Korea’s Kospi gained 2.8%, and MSCI’s broad gauge of Asia-Pacific shares — excluding Japan — reached its highest level in six weeks. US futures are broadly trading flat.

THE CLOSING BELL-

The DFM rose 0.9% yesterday on turnover of AED 831.8 mn. The index is down 5.4% YTD.

In the green: BHM Capital Financial Services (+10.0%), Talabat Holding (+4.6%), and GFH Financial Group (+4.4%).

In the red: Commercial Bank of Dubai (-2.2%), Dubai National Ins. & Reinsurance (-2.2%), and Aramex (-1.2%).

Over on the ADX, the index rose 0.6% on turnover of AED 1.3 bn. Meanwhile, Nasdaq Dubai was up 1.0%.