The International Monetary Fund downgraded its forecast for global economic growth on Tuesday, as it warned that the war in Iran could undo some of the benefits from the last few years of investment in artificial intelligence and other new technologies.

Acknowledging the tailwinds from increased business spending on investment, accommodative financial conditions and a weaker dollar, the organization said, “The Middle East conflict presents a significant counterforce to these tailwinds through its impact on commodity markets, inflation expectations, and financial conditions.”

The IMF now sees global growth of 3.1% in 2026 and 3.2% in 2027, down from the 3.4% pace seen in 2024 and 2025 and slower than its historical growth this century of 3.7%. The 2026 revision cuts growth by 0.2% annually while 2027 is unchanged.

Global inflation is expected to increase to 4.4% this year before declining to 3.7% in 2027.

For the U.S., the IMF is forecasting 2026 growth of 2.3%, down 0.1% from January, as tax cuts, the lag effect of interest rate cuts and still strong data center investment partially offset higher energy costs.

In 2027, U.S. growth is seen slightly higher, at 2.1%, from the January forecast.

“Spurred by the Iran war, trade tensions and countries holding too much debt, the forecasts are extremely concerning for the global economy,” Eric LeCompte, executive director of the religious development group Jubilee USA Network, wrote in a commentary on the IMF report. “We will experience lower economic growth and higher food and fuel costs for the foreseeable future.”

Much will depend on the duration of the Iran war with recent ceasefire talks halted amid some expectation they will resume.

Inflation is already creeping up in the U.S., driven by higher gasoline prices that have topped $4 a gallon. The March consumer price index came in at an annual rate of 3.3% but a report on wholesale inflation released Tuesday showed the annual rate of what businesses pay their suppliers hit 4%.

“We can see the reverberations from the Iran war most clearly in diesel fuel prices last month, which gained +42%,” Mark Vickery, senior market analyst at Zacks Investment Research, wrote of the PPI release. “On the other hand, gas stations only climbed +0.2%; we may expect this figure to go up from here in the months to come, which would obviously be further inflationary. Food costs dropped -0.3% in March, but again we see some inflationary pressures in the pipeline for the next couple months at very least.”