Seven weeks into the Iran conflict, the economic damage is beginning to show up in the data — and the picture is darkening. As preliminary business surveys roll in from economies stretching from Australia to the United States, analysts and policymakers alike are asking the same unsettling question: how close is the world to stagflation?
The double hit on growth and inflation
The term — evoking the toxic combination of rising prices and slowing growth that scarred the 1970s — was invoked by Chris Williamson, Chief Business Economist at S&P Global, when summarising the risks flagged by the global composite PMI in March. Now, with flash April readings due Thursday across Germany, France, the eurozone, and the United Kingdom, Bloomberg forecasts point to broad-based deterioration in Europe, even as US indicators are expected to hold roughly steady.
The data arrives a week after sombre assessments in Washington, where the IMF warned finance ministers that the world economy could be approaching recession. IMF Managing Director Kristalina Georgieva was blunt in a Bloomberg Television interview: “Even if the war ended tomorrow, recovery would take a long time to begin. The damage has already set in.”
Growth cut, inflation raised
Before the conflict erupted, the IMF had been preparing to upgrade its global growth forecasts — supported by technology investment, improving financial conditions, and productivity gains that were expected to lift output to around 3.4% this year. The war erased that optimism.
The Fund now projects global growth of 3.1% in 2026, down 0.2 percentage points from its January estimate of 3.3%, before a modest recovery to 3.2% in 2027. Both figures remain well below the 2024–25 average of 3.4% and the long-run historical benchmark of approximately 3.7%.
On inflation, the Fund has revised its global forecast upward to 4.4% in 2026 — reversing what had until recently been a steady disinflationary trend — before an expected easing to 3.7% in 2027. Its baseline scenario assumes the conflict remains contained in scope and duration, with energy-linked commodity prices rising a moderate 19% through 2026. Should that assumption prove optimistic, the projections could deteriorate further.
Central banks navigate uncharted territory
The inflation reversal carries particular weight for central banks, which had been inching toward rate cuts after years of tightening. That path now appears complicated. War-driven energy price shocks are expected to push inflation higher in Canada, the United Kingdom, and South Africa, according to Bloomberg forecasts, while rate decisions loom in Turkey and Indonesia.
ECB Chief Economist Philip Lane acknowledged the uncertainty facing policymakers. “We’ll get a rich set of survey data,” he said. “But right now, not many people have a firm view of what is going to happen.” The ECB will also receive French business confidence data on Thursday and Germany’s Ifo business climate index on Friday. Federal Reserve officials, meanwhile, will monitor the University of Michigan consumer sentiment index at the week’s end.
Bloomberg Economics analysts Jennifer Ryan and Adam Farrar cautioned that even a near-term deal between the US and Iran was unlikely to deliver lasting stability. “Israel is not part of the negotiations and still regards Iran as a threat,” they wrote, adding that diverging interpretations of key provisions — including the status of the Strait of Hormuz — “point to continued tensions.”
Georgieva’s warning cuts to the heart of the challenge facing the global economy: “We all have to learn to operate in an environment of high and persistent uncertainty.” For central bankers, finance ministers, and business leaders now parsing the incoming survey data, that is less a counsel of calm than a recognition of how far the ground has shifted — and how little of it may shift back.
