International Monetary Fund releases World Economic Outlook

[00:00:00] Speaker 1: The overall impact will depend on three channels. First, higher commodity prices are a textbook negative supply shock, raising prices and costs, disrupting supply chains, and eroding purchasing power. Second, these effects may be amplified as firms and workers try to recoup losses, risking wage-price spirals, especially where inflation expectations are poorly anchored. Third, financial conditions could tighten, with lower asset valuations, higher risk premia, capital flight, dollar appreciation, dampening demand. Our report presents three scenarios. Our reference forecast assumes a short-lived conflict and a moderate 19% rise in energy prices in 2026. Still, some damage will not be avoided. Global growth falls to 3.1% this year, a downgrade from January forecast, and headline inflation rises to 4.4%. Our adverse scenario assumes further disruption, leading to higher energy prices and inflation expectations, and tighter financial conditions throughout the year. Growth falls to 2.5% this year, and inflation rises to 5.4%. Our severe scenario assumes that energy supply disruptions extend into next year, with greater macro instability. Global growth falls to 2% this year and next, while inflation exceeds 6%. Downside risks are clearly very elevated. Now, the impact of the world will be uneven. Low-income energy importers are highly exposed, especially those with pre-existing vulnerabilities and limited buffers. But the damage is most severe for countries in the Gulf. Today's shock echoes the 2022 commodity price surge. Then, central banks delivered a successful disinflation without a recession. Can we expect the same outcome now? There are reasons to doubt it. In 2022, inflation pressures were already elevated by post-pandemic support policies. Today, underlying demand pressures have eased, though inflation remains above target in some countries, notably the United States. If the shock remains modest, inflation may be more contained, consistent with our reference scenario. Still, the last episode left scars. Higher prices raised cost-of-living concerns and made inflation expectations potentially more sensitive to new price increases. And the 2022 surge reflected an unusually steep aggregate supply curve from supply bottlenecks, enabling disinflation with limited output losses. Our analysis shows the supply curve is now much flatter, making any central bank engineer disinflation more costly in terms of unemployment. So what should policymakers do? Let's start with central banks. This is a negative supply shock, and no central bank can influence global energy prices on its own. Markets are already pricing in higher policy rates. However, provided inflation expectations remain well anchored, central banks can afford to wait and watch for now. But they must be attentive to risks and communicate clearly their readiness to act decisively to maintain price stability. In most cases, exchange rates should be allowed to adjust, allowing central banks to focus on their mandates. What should fiscal policy do? With rising public debt trajectory, fiscal space is much thinner than before. Price caps, subsidies, and similar interventions are popular, but they distort prices. Where support for the most vulnerable is needed, targeted and temporary measures should be deployed, consistent with medium-term plans to rebuild fiscal buffers, and avoiding stimulating demand where inflation is rising. Finally, if financial conditions tighten sharply, as in our severe scenario, and global activity deteriorates markedly, monetary and fiscal policies should be ready to pivot to support the economy and safeguard the financial system alongside appropriate financial and liquidity policies. Now, the war demands immediate attention, yet it should not derail from the pursuit of durable growth. It should also spur faster adoption of renewable energy, which can strengthen resilience to energy shocks, improve energy security, and support the climate transition. Advances in artificial intelligence promise large productivity gains, lifting living standards. But the transition may be bumpy. Markets may well be ahead of fundamentals. New jobs will emerge, but some existing ones will also disappear. Policymakers should promote adoption while easing the labor market transition. The world economy faces another difficult test: fraying alliances, new conflicts, and waves of inward-looking policies such as trade restrictions undermine cooperation and growth. Growing strains on international order are pushing toward a multipolar world. But a more multipolar world need not be a more fragmented one. In fact, countries are finding new trade partners and forming trade agreements beyond traditional geopolitical lines. We should keep strengthening global cooperation. With the right policies, including a swift cessation of hostilities and reopening of the Strait of Hormuz, the damage can remain limited. Thank you. [00:05:57] Speaker 2: Thank you, Pierre-Olivier. And now we are going to turn to your questions, but let me remind some ground rules. If you have a question, please raise your hand and wait until I call on you. If I do, identify yourself and the media outlet that you represent. This time around, just to try to take as many questions as possible, I'm going to be rounding questions and grouping them. So stay tuned for that. Also, we are here to discuss the world economic outlook. Questions regarding programs, negotiations, or institutional matters are not for this forum. But basically, you will have a chance to ask about those topics later in the week. So I'm going to start compiling some questions, global questions. So if you have global questions, I'm going to start with the lady on the second row there. [00:06:47] Speaker 3: Hi, good morning, Jorge Lina Rosario with Bloomberg. I just wanted to ask, as there doesn't seem to be a resolution on the conflict in the Middle East, do you think that the adverse scenario is more probable now? And in that case, you still think that central banks should wait and see? I'm talking about the 2.5 growth scenario. And also, with all these shocks that the IMF highlights that are more permanent, and they're coming more frequently, do you expect to, or are you thinking of updating the wheel more often throughout the year? Thank you so much. [00:07:27] Speaker 2: Thank you, Pilibe. We're going to take another question. I'm going to go to the front here. Don't worry, we will go tomorrow round. So stay patient. [00:07:37] Speaker 4: Good morning. Noor Ammasha from Ashark Bloomberg. Pierre, how concerned are you about the strong dollar at this point, dampening the efforts of growth and inflation containment, especially that this strength of the dollar is increasing with all the inflation expectations? Thank you. [00:08:01] Speaker 2: Okay, another global question that will be the last. I'm going to go with the gentleman here. [00:08:09] Speaker 5: Barry Wood, the American Dispatch column, the Daily Friend. Pierre, you're an economic historian. How do you compare this oil shock with the two in the 1970s? Perfect. [00:08:26] Speaker 1: So let me address this question. So first on the scenario. So precisely because we are in a very fluid environment and you can see the news every day, things are changing in a material way. We felt that we had to, instead of having a baseline, have something, our reference forecast, and then supplement that with other scenarios that would look at more extreme developments in energy markets. The reference forecast has, as its core, assumption of a relatively limited conflict that gets resolved in the second half of the year and then with energy prices that are normalizing in that second half of the year and then into next year. Very clearly with every day that passes where we don't have a resolution, where the flow of oil and gas is more limited through the Strait of Ormuz, we're moving away from that scenario. But does it mean that that scenario is not relevant? Well, not quite yet. That scenario's core assumption is that oil prices would be around $80 this year. That's an average for the year. Of course, we're above that now. We're close to 100. But we could still have a normalization if a solution is found that would bring down energy prices towards that scenario's assumption. So I would say that we are somewhere in between the reference scenario and the adverse scenario. 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. We're planning to update more frequently where we are doing two full World Economic Outlook reports every year. The one that we're presenting today, then one during our annual meetings in October. But we'll also have two updates, one in July and one in January. And so our next rendezvous point will be when we have our WIO update in July. On the dollar and the impact that this may have, this is one of the channels through which financial tightening can affect emerging and developing economies. Typically, when we have uncertainty in the global economy, when there is a risk-off episode, investors look for safety, they move their assets towards safer assets, often that means US treasuries or similar type of assets. And that is associated with the dollar appreciation. This is what we've seen in the wake of the war in the Middle East. It's been a modest appreciation by historical standards, but nonetheless it's an appreciation. And that appreciation is creating inflation pressures in other countries. They see a depreciation of their currency from their end. And it also is tightening financial conditions because many of these countries have dollar liabilities. So that's certainly making things more difficult for them. And that's one of the channels that we explore also in our adverse and our severe scenario. Now, how does it compare to previous oil price shocks? I made a reference in my opening remarks to 2022. That's the most recent energy surge that we had on record. But, of course, the reference to the 70s is also important. So let me make two points on this. First, our estimates right now is that if the conflict were to stop today, the oil shortfall for the year, including the fact that facilities have been damaged and it will take time for them to come back online, even if everything were to stop today, is comparable to the shock from the 1970s in terms of how much oil has been withdrawn from the market on an annual average basis. So the shock is comparable to the 1974 oil price shock. There are, however, two important differences compared to that shock. The first one is that the global economy is much less oil dependent now than it was back then. There are many other sources of energy, renewables, nuclear and other things. And also the global economy has become much more efficient in terms of how much it needs oil to produce GDP. And so that's a source of resilience, if you want. The second source of resilience has to do with policies. Back in the 70s, central banks looked first and foremost to try to support activity and not try to rein in inflation. And that led to macroeconomic instability, what was initially a relative price shock, the price of oil increasing relative to other prices, morphed into an inflation problem, all the prices and wages going up. Central banks have learned. They've built frameworks, they've become more independent, they've adopted frameworks that allow them to focus on price stability. And everyone knows that. And therefore, they have, whether households or the private sector, inflation expectations remain fairly low because they believe central banks will deliver on their mandate. That's a critical difference with what we had also in the 70s. And that's something that is going to be important going forward. [00:13:27] Speaker 2: Thank you, Pierre Olivier. We're going to go to another round of global questions. Two quick questions and then we will move into more regional ones. So I'm going to go the gentleman here in the second row. [00:13:44] Speaker 6: And another question about the 1970s. Are there any lessons from that period that we could use to avoid any possible stagflation, especially if the conflict in the Middle East continues further? Thank you. [00:13:58] Speaker 2: And I'm going to move to the lady in the first row. [00:14:10] Speaker 7: So this looks like, is this a new 70s? Does it mean that that shock will lead us into inflation? And does it mean that will lead us into interest rate growth? [00:14:25] Speaker 1: Do you want me to answer? Yes, please. Okay. Thank you. So these two questions are very related to the previous one that was asked. So the lesson from that period is you don't want to let an energy shock turn into an ongoing inflation problem. So this is why in my remarks I said, of course, central banks cannot do anything about the price of oil, but they can do something about preventing the emergence of wage price spirals, the anchoring of inflation expectations, and they're expected to do that. So they don't have to step on the brakes right away. They can afford for the major central banks, whether we're looking at the Federal Reserve, the European Central Bank, Bank of Japan, or the Bank of England. We don't necessarily think that they need to raise interest rates right away. But if they see signs that inflation is taking hold, if they see signs that their wage price spirals, if they see signs that households and businesses start expecting a more permanent and persistent inflation, then they will need to take action. And that's one of the big lessons that has been learned in the 70s and that we should not forget. The other lesson from that period is the importance, as I mentioned in my opening remarks, the importance of energy diversification. It's very clear that the best way, and that was something that a number of countries did already in the 70s, and many more countries will do now, is to find ways in which they can diversify their sources of energy, rely more on sources of energy that they can produce domestically. Often that means renewables. And so we're likely to see a big push in that direction. So inflation, inflation is going to be there. If you look at our forecast, we're projecting 4.4 percent inflation this year. That's headline inflation. And we're projecting a slight increase in core inflation. But under our reference forecast, this is expected to fade away into next year. And in 2027, we would be back on the disinflation path that we've been on for the last few years. Of course, if the shock gets larger, if the disruptions get more severe, then we could get more of an inflation shock that would last more into next year. And under our severe scenario, for instance, inflation would rise to 5.8 percent this year and 6 percent the next year. So those would [00:16:33] Speaker 2: be much higher levels of inflation. Okay, I'm going to turn to Webex first. I just want to remind everyone that we have reporters joining us on Webex and through the press center. So I see Yikai, [00:16:46] Speaker 8: please, we're coming. Yes, Goewe, our eight-time media group. A question on China. So growth in China for 2026 is revised upward by 0.2 percentage point relative to October to 4.4 percent this year. And it's a modest markdown compared to the January projection. So how do you assess the impact of this conflict on the Chinese economy and its resilience in weathering external shocks? Thank you. [00:17:14] Speaker 2: And before we answer this question, as we are in China, Asia, any other question in the room through on the region? Please, the lady in the first row. [00:17:28] Speaker 9: Thank you. Karishma here from Business Today India Today group. You've mentioned that how fiscal space has shrunk due to and that's of course resulted in rising public debt. From emerging market scenario for the Asia-Pacific, say markets like India and rest, where do you see the policymakers to prepare such vulnerabilities? [00:17:52] Speaker 1: And I think you can answer. So on China, yes, we have a slight downward revision compared to our January forecast for China to 4.4 percent. We're projecting in January 4.5 percent. And it is an upward revision from October. There's been the Chinese economy has been doing quite well in the last part of last year. And so some of this is a carryover, if you want, from the strong performance in 2025. And but then, of course, there is some impact of the war in the Middle East. Some of the revision upward is also related to the reduction in tariffs that in January, following the decision by the U.S. Supreme Court to rule out IEPA tariffs that lowers the effective tariff rate that the Chinese economy is facing, even if some of it has been replaced by Section 122. And so overall, that also helps the Chinese economy. And finally, there is some additional fiscal support that has been provided. So all of this together leads to a modest correction for the Chinese growth number in 2026 relative to what we had in January under the reference forecast. Now, the Chinese economy remains an economy that is expected to see its growth rate come down. So it was 5 percent in 25. Now it's 4.4 and it's expected to be 4 percent in 27. And that reflects some of the domestic imbalances in in that economy between an export sector that is doing quite well. They've been very strong performance on the export side, but a domestic side of the economy, domestic consumption is still fairly fairly weak. And going forward, that's becoming more and more of a headwind for the Chinese economy to try to grow essentially through the external sector. And there is a need to rebalance the growth drivers from the external sector to the domestic sector. That's something that we've emphasized in our consultations with the authorities. On the question that was asked about debt for emerging market economies. Now, the starting point here, and we had the whole chapter of our report in October, is one where emerging market economies have been weathering the recent shocks fairly well, maybe better than anyone would have anticipated. They've demonstrated a huge amount of resilience to the inflation surge, to the COVID period. So the last 10, 15, 20 years have been a period where emerging market economies have really improved their macroeconomic policy making, their frameworks, and that resilience is likely to be tested. A number of them have elevated debt levels. They don't have a lot of room on the fiscal side. And therefore, whatever measures they would need to deploy in order to protect the most vulnerable part of the population as a result of energy and food price increases, will have to be very, very narrowly targeted and very much within their budgetary envelope. [00:20:53] Speaker 2: Okay, we go back to the room. I'm going to go second row here. [00:21:03] Speaker 10: Hi, good morning. Sue Chan from The Telegraph. A question about the UK. Why is the UK downgrade bigger than other major economies? What can we do about it? And you say in the forecast that you expect the impact of rising energy prices to relying on energy prices to linger in the UK? Why is that? [00:21:20] Speaker 2: Okay, any other questions on the UK? Don't worry, we will get to more rounds. I'm just trying to be as [00:21:29] Speaker 11: effective as possible. Alex Brummer from The Daily Mail. The UK has a history of wage price inflation and indeed there are industrial disputes going on at the moment in the National Health Service. I just wondered if you fear that the UK could be back into a wage price cycle of the 1970s. [00:21:50] Speaker 2: And before you answer, Pierre Olivier, we have another question from Tim Wallace from The Telegraph also saying, please, can you expand on the reasons for the UK downgrade? [00:22:00] Speaker 1: Yes, very happy to do that. So on the UK downgrade, we have effect, yeah, the UK's numbers are revised down for 2026 by 0.5 percentage point. So we're projecting a growth rate of 0.8%. Now, there are two main reasons for this. The first one is the war in the Middle East, of course, and I'll expand on that in a minute. But there is also the fact that there was a relatively weak performance of the UK economy in the second half of last year. And the way the numbers are computed, there is what we call a carryover. So there is a kind of a shadow effect of that growth into 2026. And that also contributes to a lower growth number overall. But there is an expectation of a rebound in 2027 and growth is expected to be at 1.3%. Now, the impact of the war in the Middle East in for the UK is, of course, coming through energy price and in particular gas prices. And the UK is is highly reliant on gas for its for its energy mix. Now, a lot of this gas is produced domestically, but there is still a part of it that is imported. And the part that is imported is that market prices, it's much more expensive. And that kind of sets the price for energy in the UK, in an environment in which gas reserves are relatively low when you compare them to other European countries. So there is more of a pass through, if you want, of gas prices into wholesale prices of energy, even if households are protected temporarily because there are there are some measures in place. So there is an impact of the developments in the Middle East and disruptions in energy markets in the UK. Now, even we're revising up inflation for the UK as well. Headline inflation, we're expecting 3.2% next year, but we're not moving very much our estimate for core inflation. It's expected to be above 2%, but only marginally up from what we were projecting in January around 2.7%. And the reason for that, and that's how I'm getting to the question about the wage price barrel, is the UK economy still has a negative output gap in our estimates. So there is quite a bit of slack. And that's actually is moderating some of the wage pressures. Now, we'll have to see and watch how the increase in energy prices, especially when they get to consumers, whether that translates into a different dynamic. But right now, there is little evidence that there are strong wage pressures in the UK economy, and therefore, under the reference forecast, our estimates of core inflation are not increasing too much. [00:24:32] Speaker 2: Okay. We have a question regarding Europe that comes from Jan Luca. "Don Francesco, Il Sole, 24 ore. Will it be the right thing to do for the EU to put on hold its stability pact?" That's one. Any other questions regarding European countries in the room? I'm going to go to the gentleman there. [00:24:54] Speaker 12: Yes. Hugo Dixon, Reuters. I have a question. Have you done an analysis of if there are tolls on the Strait of Hormuz, whether that will be primarily absorbed by the consumers in Europe and elsewhere or by the producers? [00:25:17] Speaker 2: I think we can go ahead. [00:25:18] Speaker 1: All right. On the question of the EU stability and growth pact, I mean, our assessment is that a number of European economies really need to bring their - rebuild their fiscal buffers, bring their deficits, especially their structural deficits down, and they are on their way to doing that under the EU rules. It's a multi-year plan, so they have objectives in 2029, 2030, 2031. They don't do it in one go, but they are on their path to get there. And it's very important to stay the course. It's very important to continue rebuilding those fiscal buffers, not deviate, not suspend the rules because there is the energy price shock. And if measures need to be taken, again, to support maybe the most dependent or the most vulnerable categories of households or some businesses maybe that are more dependent on energy, then those measures can be implemented, but they can be very, very targeted. They can be very temporary as well. What we've seen in the 2022 episode is a number of measures have been adopted, often very costly. Two to three percent of GDP in many of the countries that adopted support measures that were financed by deficits, financed by debt, and often not removed as soon as the crisis is debated. People like it when they get the subsidy or a cut in energy prices. It's politically difficult to remove them. So they need to be very clear rules on how they are removed. On tariffs and tolls on the transit shipments through the Strait of Hormuz, we haven't done detailed analysis on this. I would just venture that in an environment in which there is a very inelastic energy supply, I would think the incidence is on the consumers, not on the producers. [00:27:05] Speaker 2: Okay. We go back to the room. I'm going to see the lady on the first row. [00:27:19] Speaker 13: Thank you for taking my question. My name is Nume Ekege from Disney newspaper Nigeria. Given the tighter global financial conditions, what strategies does IMF recommend for African countries, especially Nigeria, to maintain investor confidence? And also there's been a downgrade on Nigeria's outlook from 4.4 to 4.1. Can you tell us what's responsible for that downgrade? Thank you. [00:27:44] Speaker 2: Okay. Any additional questions on Sub-Saharan Africa countries? I see the gentleman next, yeah. [00:27:55] Speaker 14: So my name is Desmond Ocon. I write for the Cable News Nigeria. So Nigeria is targeting a single-digit inflation of between 6% to 9%. Given the current global shocks, how realistic is that? That's one. All three warring countries are close to the fund. Apart from all you do and your core functions, is there any internal engagement on the part of the fund to see what they can do to potentially end the war? Thank you very much. [00:28:29] Speaker 1: So on Sub-Saharan Africa, I mean, we are seeing just very broadly, and then I'll turn it over to Denise, we are seeing some downgrade of growth and we are seeing some uptick in inflation in a number of countries in the region. So the impact is very much along the lines of what we see more broadly, which is for a lot of the countries, especially the ones that are energy importers. But there are also energy exporters in the region, and so there is some differentiation in terms of the impact. On the fund engagement more broadly, I mean, we are certainly following with a number of countries what their needs might be in the current environment. We're certainly coordinating as well. Our managing director has started a coordination group with the IEA and the World Bank, so we're following developments in energy markets very, very closely. And of course, we're calling for a very swift end to the hostilities and the normalization in energy markets. But Denise, over to you. [00:29:31] Speaker 15: Thank you, Pierre-Olivier, and thank you for the question on Sub-Saharan Africa, in particular in Nigeria as well. So for Sub-Saharan Africa, we need to take a step back. Actually, 2025 was a relatively strong year and before the war began, global growth prospects being resilient and non-oil commodity prices being strong and external financial conditions being supportive actually helped a lot of countries in the region. Now, with the war, we have reduced global growth and softened prices for non-oil commodities and also worse in terms of trade for oil importers, and that's an important aspect for variation within the region as well. And on top of that, the region is also facing significant challenges from headwinds from declining foreign aid, which on the bilateral aid cuts range from 16% to 28% in 2025. And we project that trend to continue. Now, how is that affecting the economy? As Pierre-Olivier said, we have a downgrade on growth by 0.4 percentage point cumulatively for 26 and 27. And at the same time, median inflation in Sub-Saharan Africa is projected to go up from 3.4% in 2025 to 5% in 2026. And that's only reflecting the high oil and fertilizer prices, fuel shortages, potentially, and rising borrowing costs. And fertilizer prices in particular are a concern for the region because of its dependence on the agricultural products as well and the existing level of food and insecurity. Now, turning to Nigeria quickly, we have revised down Nigerian growth as well by 0.3% percentage point to 4.1% in 2026. And that is reflecting a balance of two forces. One is that the war-related higher fuel and fertilizer prices and higher shipping costs that I mentioned are going to weigh on non-oil activity in Nigeria. There's some offset coming from higher oil prices. But at the end of the day, the balance is for weighing on growth in 26 with some recovery built in in 2027. As far as inflation developments go, we believe that tight monetary policy and remaining data dependent and watching very carefully both exchange rate movements and inflation expectations is going to be crucial to achieve the [00:32:08] Speaker 2: inflation target of the central bank. Okay, we have 10 minutes and two regions to cover. We're going to go to the Middle East. I'm going to go first to Webex. I see Doha in the Webex. So, Doha, please come in. [00:32:26] Speaker 16: Hello, Jose. Thank you so much for taking my question. Good morning, Pierre, Pretia, and Denise. I have two questions. My first one is the MENA region. Pierre, you have said that the impacts of the regional world will be severe on the oil exporters in the region. What about the oil importers in terms of the debt, inflation and GDP growth expectations? My second question is a country-focused one. It's in Egypt. The report showed that the IMF has reduced its projections for the GDP growth for the country amid the ongoing war. Could you please elaborate more on that? Thank you so much. [00:33:11] Speaker 2: Any other questions in the room? I see Kyle there and then I will try to bundle another one. If it's on the Middle East, then we will go to Western Hemisphere and Latin America. Please, Kyle, go ahead. [00:33:25] Speaker 17: Good morning. Kyle Fitzgerald with The National. Thank you for taking my question. I just want to go back to what Pierre Olivier said earlier, that we're sort of drifting closer to this adverse scenario. So, how do you imagine this adverse scenario playing out in the Middle East, both regards to the short-term and the medium-term outlook? Thank you. [00:33:42] Speaker 2: Any additional question? Gentleman here. [00:33:49] Speaker 18: Good morning. I'm Fabrice Naudelonga from Le Figaro based in Paris. Could you elaborate a bit about the figures you give for Saudi Arabia? Of course, you downgrade its growth forecast, but it still should grow in the reference scenario by over 3%. How do you explain this? And can you elaborate a bit about the very severe figures you give for Qatar and Iraq? Thank you. [00:34:14] Speaker 1: Yes, thank you. So, of course, the MENA region is very heavily affected, and you can basically think of, broadly speaking, three groups of countries. You have the conflict countries, and that includes a number of energy exporters, but really the dominant force for them is the fact that they are in the path of war right now, and that leads to a very significant downgrade, and sometimes even negative growth rates for a number of them. Then you have energy exporters that are not necessarily in the conflict region. They can benefit from increasing energy prices, even though their population might also be affected by by some of the effects of the energy crisis in the form of higher energy prices or potentially food prices down the line. And then you have energy importing countries in the region, and they're affected like many other countries around the world through higher, their reliance on energy coming from the Gulf region, and how it's affecting both the cost of energy, transportation, and potentially down the line again food prices. So that's kind of the broad overview. The adverse scenario would make things worse. The adverse scenario assumes that energy prices are higher than what we have in the reference forecast. It's still a relatively short-lived disruption, so we're expecting energy prices to normalize in 2027 back to around $75 a barrel for oil, for instance, but a more acute and more severe disruption. And of course the countries in the region are going to be more severely affected. Now on the [00:35:56] Speaker 19: more granular country specific, I will turn to Petia. Thank you. Let me start with a question on Egypt. There we have downgraded our forecast for this year in 2026 to 4.2, which is a downward division of 0.5. In 2026 to 5.3. And like other energy importers, Egypt is among one of the countries affected by the developments by the war. And the higher oil prices are going to reduce real income, they're going to dampen consumption, and also the uncertainty is going to affect investment. So these are the main factors behind the downgrade, which is, by the way, not only for 2026, but also for 2027. Now, when it comes to Saudi Arabia, we saw very strong growth there in 2025, which was boosted by the rebound in oil production then, as well as non-oil activities. But then this year, with the start of the war, we have a significant downward revision in our growth forecast. The revision is in the order of about 1.4. So the growth rate that we right now have for 2026 is 3.1. Now, this revision, the biggest factor behind it is the downgrade in the oil activity in the country. And that revision of the oil GDP is a little bit over 3 percentage points. So it's really sizeable, which reflects the lower production, which is related to the disruptions due to the war, although there has been some rerouting, which is a mitigating factor. At the same time, we also have lower non-oil activity, as again, as in other regions, the higher commodity prices also lead to lower real income and lower domestic activity. Let me stop here. [00:38:16] Speaker 2: Okay. We're going to go through a last round, and we have a region that we haven't touched upon. It's at the Western Hemisphere, and I'm including Latin America here. First of all, we have a question from Oglovo. How is Brazil positioned to deal with global shocks? I'm going to go to the room. Any other, I see my Argentine friends there. So, Paula Guillermo, please go ahead. [00:38:38] Speaker 20: Thank you, Paula Lugones, Forklar in Argentina. The outlook revised down Argentina's growth forecast for this year. Was it because of the impact of the war, or there are some other reasons? Because Argentina is an oil exporter. And also, can you please also elaborate a bit about the inflation forecast? Thank you. [00:39:04] Speaker 2: We have a similar question from Infobae regarding Argentina's inflation. Very quickly, I just can get one question here, and then we need to move on, because we have literally three minutes. Thank you. [00:39:18] Speaker 21: Hello. I'm Miguel Muscosa from Merceo, Mexico City. Do this economic outlook include an extension of the USMCA? And what other factors that will influence economic growth expectations in the region? Thank you. [00:39:34] Speaker 1: So, Brazil, Mexico, and Argentina. Well, let me just say just one quick thing about Brazil, and I'll turn over to Petia. Brazil is actually a net energy exporter, so it's benefiting in 2026 from the increase in energy prices. And we're expecting, however, that there will be either through tightening of financial conditions and also increase in inflation, there might be a little bit of a slowdown in 2027. But let [00:40:06] Speaker 19: me turn it over to Petia for more details. So, keeping the focus on Brazil, we have upgraded our forecast for this year to 1.9. And I think this is not just because of the improved terms of trade, but also because of the very strong second half of last year and the momentum of that also carrying over into this year. It's also important to point out that Brazil is one of the countries with very high share of renewable energy, which is another mitigating factor. Then turning to Argentina, there we do have a downgrade of growth this year of 0.5. So, now we're expecting growth to be 3.5. This is very much due to the weaker momentum in activity that we saw in the second half of last year. And I think that is the main factor. As you pointed out, Argentina is as a net exporter. So, the positive impact of the improved terms of trade is also offset by the fact that, you know, with the higher commodity prices and the inflation that is eroding real income, and as in other countries, that works in the opposite direction. Now, when it comes to inflation, we saw inflation come down from 118% at the end of 2024 to 31.5% at the end of 2025. We are expecting the disinflation process to continue, but a bit more gradually than in our previous forecast. And then, finally, just a few words on Mexico, where we do have a slight upward revision in our forecast. We are expecting now growth to be 1.6 this year and 2.2 next year. Part of that, again, is because of developments that already happened in 2025. We did see stronger than expected momentum at that point. So, and on top of that, we also have the lower than expected tariffs than in our previous forecast. So, that is offsetting the impact of the war. And when it comes to the U.S. MCA, we've noted that negotiations have started. I think it's too early to evaluate outcomes and such, and this is something that we'll be doing as we have more clarity on the process. Thank you. [00:42:56] Speaker 2: Thank you, Petia, P. Olivier, Denise, and thank you all of you for attending this press briefing. There's going to be other opportunities during the week to continue asking questions. I want to remind you that the Global Financial Stability Report press briefing is taking place in this same room around 10:30 a.m. Tomorrow, stay tuned for the fiscal monitor and the press briefing from the managing director. And then, later on the week, all those regional press briefings. On behalf of P. Olivier, Petia, Denise, the research department, communications department, thank you very much. Any questions, comments, feedback, media@imf.org. Thank you very much. [00:43:41] Speaker ?: I'll see you next time. I'll see you next time. I'll see you next time. We'll see you next time. We'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.