IMF: Middle East Conflict, Data Centers Will Shape Economic Growth in 2026

---

Written by John Egan for IIR News Intelligence (Sugar Land, Texas)

---

Summary

Global economic growth is expected to slow slightly this year as the Middle East war drives up commodity costs and inflation expectations, the International Monetary Fund said. The pace of any slowdown, or speedup, will be shaped by two critical uncertainties: the war in the Middle East and the evolution of the global technology cycle, specifically the demand for and investment in data centers and artificial intelligence (AI).

---

IMF Sees Slight Slowdown from Earlier Outlook

Global economic growth is projected to be 3% in 2026 and 3.4% in 2027, the International Monetary Fund (IMF) said in a report issued Wednesday. In its "World Economic Outlook Update," the group said economic growth this year would be 0.1% less than it predicted in April, when the U.S., Israel and Iran were in an active war in the Middle East. Going forward, the demand for and investment in data centers and artificial intelligence (AI) is one of the critical uncertainties in the economic growth scenario, the IMF said. Industrial Info Resources is tracking more than 9,400 active capital data center projects across the globe, worth US$6.26 trillion, with the U.S. accounting for more than two thirds of that investment value.

The group said growth this year would slow from the 3.5% annual worldwide economic expansion that was recorded in 2024 and 2025.

The outlook could change depending on two uncertainties: the effect of the U.S.-Israeli war with Iran and how the current advanced technology cycle, specifically data centers and artificial intelligence (AI), unfolds.

By the Numbers

• 3%: Projected 2026 global economic growth, down slightly from an April estimate prepared by the IMF.
• 2.3%: Forecast U.S. economic growth in 2026, virtually unchanged from an earlier IMF outlook, down from 2.8% growth recorded in 2024 but up 0.1% from 2025 growth.
• 0.9%: Expected economic growth across the Euro area this year, a 0.2% decline from the group's April projection.
• 3.8%: Forecast economic growth this year in Emerging Market and Developing Economies, down from 4.5% growth in 2024 and 2025.

Middle East War a Critical Variable

Depending on whether and to what degree hostilities in the Middle East resume, which likely would again interrupt the flow of oil and natural gas through the Strait of Hormuz, the IMF outlook could be darker or brighter. The 14-page report did not include scenarios for either negative or positive developments in that conflict. But it did note that, to date, the effect of the war has been muted on the world's economy, partly because many nations tapped their crude oil stockpiles. Their ability to do that again is doubtful, as those stockpiles remain drawn down and have not been replenished.

The IMF report was written last month, as a 60-day ceasefire in Middle East hostilities was being negotiated. But that fragile truce has been threatened, almost from the start, by the words and actions of the U.S., Israel and Iran. On the day the report was released, the U.S. and Iran were several days into a tit-for-tat escalating cycle of violence that led President Donald Trump to declare the ceasefire was "over" as he attended a NATO meeting in Turkey.

Advanced Technology Trend is Second Critical Variable

The IMF identified the advanced technology cycle as the other critical variable affecting global economic growth this year and next. It noted the extraordinary surge in demand for, and investment in, data centers and AI. That surge in economic activity has helped cushion the world from the full impact of the Mideast conflict, the IMF said: "Strong corporate earnings and a resilient global economy have helped cushion the financial system from the effects of the Middle East conflict." Crude oil prices rose and stocks fell Wednesday after the president's comments were reported.

The IMF report did not project whether the surge in investment and demand for AI would continue. Big Tech companies and data center developers reportedly have pledged to invest about $700 billion building data centers in the U.S. this year, an 81% gain over 2025 investment, according to those companies' first-quarter earnings calls with analysts. For more on that, and forces potentially countering it, see July 8, 2026, article - Money, Votes and Data Centers: Will Political Spending Overcome Rising Public Opposition to Data Centers?

How the advanced technology trend plays out has two distinctly different implications, the IMF said. "If the recent surge in AI-related investment were to translate more rapidly into broad-based deployment and efficiency gains," the report said, "medium-term growth could strengthen. The gains would likely be larger and more persistent if accompanied by policies that ease energy and infrastructure constraints, increase access to critical inputs and facilitate labor reallocation across sectors."

On the other hand, expectations around data centers and AI could prove to be unduly optimistic. "In such a scenario, investment in technology-intensive sectors could retrench abruptly, and frothy equity valuations--particularly in AI-exporting economies and markets with high concentration in technology firms--could correct sharply."

Uneven Economic Impact

The IMF report said that the overall impact of the war and the AI surge "varies widely based on countries' exposure to the war and position in the technology value chain. Energy exporters outside the conflict zone benefit from favorable terms of trade, whereas economies plugged into the technology-led upturn experience stronger activity even if they are energy importers. In contrast, activity weakens for energy importers with limited participation in the technology value chain, a group that includes many low-income countries."

For example, while many Asian nations, such as Korea, Malaysia, Thailand and Vietnam, are large energy importers, they also are at the center of the chip and AI boom. The U.S., by contrast, has been largely insulated from the effects of the Middle East war because it has a large resource base of oil and natural gas.

The economic impacts of the war and the technology cycle are likely to felt differently in different regions. The most negative effect is expected to be felt in Middle East and North Africa (MENA) countries, the IMF said, though the top four data center hardware exporters were expected to do fine, despite their high level of energy imports.

Key Takeaways

• Global economic growth in 2026 is expected to slow only marginally compared to an earlier assessment prepared by the International Monetary Fund.
• The course of the Middle East war, and the trend of demand for and investment in data centers and AI, were identified as two critical variables that could brighten, or darken, economic growth this year.

---

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).