The International Monetary Fund has lowered its forecast for global economic growth in 2026 to 3.1%.

However, the armed conflict in the Middle East has seriously destabilized the geopolitical and geo-economic situation on a global scale. As a result, in April, the IMF adjusted its forecast for global economic growth in 2026 to 3.1%. At the same time, global inflation is expected to rise to 4.4%.

The realization of this forecast is based on the assumption that the Middle East conflict will not be very prolonged, not too intense, and will be localized, with the disruption to global economic development caused by it largely resolved by mid-year. At the same time, the IMF allows for the possibility that the conflict could drag on and expand. In this case, two scenarios are possible. With a significant and sustained increase in energy prices, global economic growth could slow to 2.5%, and inflation could reach 5.4%. In a more negative scenario, where significant damage is inflicted on energy infrastructure in the conflict zone, global economic growth could shrink to 2%, and the inflation rate could exceed 6%. In this case, the IMF believes that the negative impact on developing countries and countries with transition economies will be almost twice as strong as on developed countries.

To prevent the most pessimistic expectations from coming true, the IMF proposes that the leadership of various countries preemptively develop a set of measures aimed at increasing resilience to external shocks and promptly addressing domestic issues that could lead to social protests. In particular, additional funding may be required to stimulate economic development and stabilize the financial system, which, in turn, could increase the inflation rate and cause public discontent with the rapid rise in prices. In the event of sharp fluctuations in the exchange rates of national currencies, central banks are advised to conduct currency interventions and strengthen currency controls, while governments are required to provide timely and reliable protection for the most vulnerable groups of the population from extreme external shocks.

In addition to the need to develop appropriate national monetary and fiscal policies, the IMF recommends that countries strengthen cooperation and take coordinated actions to restore stability in international economic relations, including enhancing integration in the area of foreign trade. Protectionist measures involving the introduction and use of various foreign trade restrictions, in the IMF's view, provide minimal economic effect in current conditions while having a negative impact on national production development.

So what will happen to the global economy this year? Since it is currently "in the shadow of war," the consequences of which are not yet fully determined, the most likely and justified scenario appears to be a slowdown in economic growth and an increase in the inflation rate. This will mean a global decline in living standards. Developing countries and countries with transition economies, which are heavily dependent on imports and lack sufficient international reserves, may suffer the most. The prospects for the development of the global economy and world finance this year are best described by the well-known saying "hope for the best, but prepare for the worst."

Author: Doctor of Economic Sciences, Professor of the Department of World Economy and World Finance at the Financial University under the Government of the Russian Federation Igor Alekseevich Balyuk.