The global economic outlook has ‘darkened’ since the outbreak of war in the Middle East, according to a new report from the International Monetary Fund (IMF).

The Washington-based institution has downgraded its forecasts for most advanced economies, warning that the conflict, triggered by the US-Israeli invasion of Iran on February 28, is feeding inflation and denting confidence worldwide.

Spain still outperforming but slowing

In Spain, the IMF now expects the economy to grow by 2.1% this year, confirming a figure it had already signalled earlier this month.

That marks a downgrade of two tenths compared to its January outlook, but still leaves Spain performing well ahead of its European peers.

Growth in the eurozone is forecast at just 1.1%, with France and Germany trailing even further behind.

Even so, it shows a weaker momentum across the board, with most major economies seeing their projections trimmed.

Inflation fears resurface

The IMF now expects prices in Spain to rise by an average of 3% this year, up from its previous forecast of 2%, as the war pushes up costs, particularly in energy markets.

The report warns that memories of the post-Ukraine inflation surge are still fresh, raising the risk that consumers will pull back spending in anticipation of further price rises.

That, in turn, could deepen the slowdown.

Global downgrade with few exceptions

The US has also seen its outlook cut slightly, with growth now forecast at 2.3%.

Across the global economy, the picture is largely negative, with most countries facing downward revisions.

Only a handful, including Japan, India, Brazil and Mexico, have avoided cuts.

Russia, meanwhile, stands out as a notable exception, with its economy expected to benefit from the geopolitical shock, particularly if tensions around the Strait of Hormuz continue to drive up energy demand.

Worst-case scenario: inflation above 5%

The IMF warns that the situation could deteriorate further if the conflict escalates.

A prolonged closure of the Strait of Hormuz or continued attacks could push global inflation above 5% and drag growth down to around 2.5%, in a scenario that would hit both developed and emerging economies.

IMF rejects price caps

The report also delivers a clear message to governments considering intervention.

‘Price caps, subsidies and similar measures are popular, but often poorly designed and costly,’ the IMF cautions, urging policymakers to avoid broad-based interventions.

Instead, it recommends targeted, temporary support for the most vulnerable while preserving market price signals.