NEW YORK: Emerging market and developing economies face mounting risks from higher costs and geopolitical uncertainty after the International Monetary Fund (IMF) cut its 2026 growth forecast to 3.9 per cent from 4.2 per cent in January.
The IMF said higher energy and food prices, alongside uncertainty from the war in the Middle East, are expected to weigh most heavily on vulnerable, commodity-importing countries.
It said the downgrade is steeper than for advanced economies, highlighting the developing world’s greater exposure to oil shocks, currency weakness and shifts in investor sentiment.
The IMF said the war’s impact would vary widely depending on proximity to the conflict, as well as 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,” it said in its World Economic Outlook.
It said countries most at risk are commodity-importing emerging economies with existing weaknesses, where higher import bills, weaker currencies and reduced capital inflows could fuel inflation and intensify financing stress.
The IMF said its outlook is based on a relatively benign scenario in which the conflict remains contained and short-lived, with disruptions easing by mid-2026. However, it said this assumption is already shifting.
“We are somewhere in between the reference scenario and the adverse scenario,” said IMF chief economist Pierre-Olivier Gourinchas.
“And of course, every day that passes and every day that we have more disruption in energy, we are drifting closer towards the adverse scenario.”
In the IMF’s adverse scenario, global growth would slow this year from 3.1 per cent to 2.5 per cent.
Gourinchas said the fund is also monitoring the impact of a stronger US dollar on inflation in developing economies, as it is a typical transmission channel for tighter financial conditions in emerging markets.
