The International Monetary Fund (IMF) has indicated in its latest economic outlook that the actual economic damage to the US and global economy from the US-Iran conflict is less severe than previously feared by markets. However, the geopolitical turmoil is expected to generate a new wave of persistent inflationary pressures, with the challenge of rising prices unlikely to dissipate completely in the near term.
The IMF stated that following a fragile ceasefire between the US and Iran, international oil prices have retreated faster than anticipated. Nonetheless, the inflationary damage inflicted by the conflict has already materialized and will require a lengthy period to repair. Even if hostilities between the US and Iran conclude entirely, US inflation is not projected to fall back within the Federal Reserve's 2% target range until the end of 2027, making it difficult to approach this benchmark in the short term.
This past Wednesday saw the most intense exchange of fire between the two sides in a month, causing crude oil prices to surge 6% in a single day and highlighting the ongoing uncertainty surrounding the geopolitical situation.
US inflation had already begun to re-accelerate prior to the outbreak of the US-Iran conflict in late February. Inflation had dipped to 2.3% in early 2025 before rebounding consistently, soaring to 4.1% by May of this year. Economists widely attribute this resurgence to two primary factors: the lagged effects of tariff increases implemented by the Trump administration, combined with the sharp spike in oil prices following the outbreak of conflict.
Global Growth Shows Unexpected Resilience as Energy Intensity Declines
Despite persistently high inflation, the momentum of US economic growth has not been significantly hampered. The IMF has maintained its existing growth forecasts unchanged: it projects US GDP growth of 2.3% in 2026 and 2.2% in 2027. The actual economic growth rates for the US in 2024 and 2025 are estimated at 2.8% and 2.1%, respectively.
The full-year global growth forecast is also maintained at 3%, consistent with previous estimates. The IMF noted that the global economy's resilience in weathering this geopolitical shock has, so far, been better than the panic-driven market expectations.
A core reason cited is a qualitative shift in the global industrial structure, with economies worldwide becoming significantly less dependent on oil and gas resources. The report mentions that compared to several years ago, the energy intensity per unit of output has declined markedly across nations, substantially weakening the transmission effect of crude oil price fluctuations to the overall economy.
Two Major Long-Term Risks Loom, with Geopolitics and AI Asset Bubbles Hiding Recession Dangers
The IMF simultaneously cautioned that the US and global economy still face significant downside risks that cannot be ignored. On one hand, the unresolved conflict in the Middle East remains a persistent threat that could re-escalate at any time, pushing energy inflation higher. On the other hand, excessive market enthusiasm for the artificial intelligence sector poses a risk; a reversal in sentiment could trigger a deep correction in stock markets.
The report assesses that uncertainty in global policy and geopolitics will remain elevated until at least 2027. The current fervent speculation in capital markets around the AI sector has already sown the seeds for potential severe financial market volatility.