The International Monetary Fund (IMF) has projected that the global economy will grow by 3.1 per cent in 2026, as strong investment in artificial intelligence (AI) helps offset the economic impact of the war in the Middle East, although rising debt, higher energy prices and growing global uncertainties threaten the outlook.
In its World Economic Outlook released on Tuesday, October 13, during the IMF and World Bank annual meetings in Bangkok, Thailand, the fund raised its global growth forecast slightly from the 3.0 per cent projected in July. However, the new estimate remains below the 3.5 per cent growth recorded in 2025.
For 2027, the IMF maintained its global growth forecast at 3.4 per cent, representing an increase of 0.2 percentage points from its April projection.
The improved outlook is largely attributed to continued investment in AI infrastructure, which has supported major advanced economies developing AI platforms and countries supplying essential hardware. South Korea, Malaysia, Mexico and Thailand are among the economies benefiting from increased demand for AI-related products and services.
However, the IMF warned that the global economy’s ability to withstand repeated shocks was weakening as the Middle East conflict continued to push oil prices above $100 per barrel.
“The global economy has been resilient, but that resilience is reaching its limits, so we need to move from just coping to rebuilding,” IMF chief economist Silvana Tenreyro said at a news conference. “We need to restore fiscal space. We need to rebuild supply-side resilience.”
Tenreyro identified several threats to global growth, including a prolonged or intensified Middle East war that could fuel inflation, rising government borrowing costs caused by higher bond yields, extreme weather linked to El Niño and a possible reassessment of the profitability of AI investments that could trigger a decline in investment and asset prices.
Petya Koeva Brooks, the IMF’s deputy research director, told Reuters that governments and businesses had taken steps to reduce the effects of higher oil prices by using reserves, finding alternative suppliers and energy sources, and reducing consumption. Without these measures, she said, global growth could have fallen to 2.5 per cent in 2026. However, the benefits of these responses are weakening as the conflict continues.
The fund also highlighted a widening gap between economies benefiting from AI investment and those being left behind. According to the report, just 32 countries now account for 95 per cent of global economic growth, compared with 54 countries identified in April.
Economic downgrades have also become more widespread, with the IMF lowering its growth projections for 47 per cent of economies compared with its April forecasts. Several countries that import energy but are not integrated into AI supply chains have been particularly affected.
Gulf economies directly impacted by the US-Israeli war against Iran have suffered some of the sharpest downward revisions. Saudi Arabia’s economy is now projected to contract by 3.3 per cent in 2026, a significant reversal from the 1.7 per cent growth forecast in July.
The IMF also expects Iran, Iraq, Kuwait, Qatar and the United Arab Emirates to experience deep recessions this year, with their economies projected to shrink by 7.6 per cent, 16 per cent, 16.7 per cent, 15.6 per cent and 3.9 per cent, respectively.
US Growth Holds Steady as Europe Improves
Among major economies, the IMF projected US economic growth of 2.3 per cent for both 2026 and 2027. The forecast for this year remains unchanged from July, while the projection for next year has increased by 0.1 percentage point.
The American economy is expected to receive support from strong consumer spending, tax cuts and AI investment. However, the IMF warned that the benefits of AI spending would be partly offset by the high proportion of imported goods and services involved in the investment boom.
The eurozone’s growth forecast for 2026 was raised to 1.1 per cent from 0.9 per cent in July. The improvement reflects stronger AI-related investment, participation in AI supply chains, including chemical production in Germany, and increased defence spending across European Union countries.
The United Kingdom also received an upward revision, with its 2026 growth forecast rising by 0.3 percentage point from July to 1.3 per cent, supported by higher investment in AI.
China’s economy is projected to grow by 4.5 per cent in 2026 and 4.0 per cent in 2027. Both figures are 0.1 percentage point lower than the IMF’s July forecasts, as higher oil prices add to weak domestic demand despite strong exports.
India is expected to remain the world’s fastest-growing major economy, with projected growth of 7.0 per cent in both 2026 and 2027. The IMF raised its forecast for this year by 0.6 percentage point and next year’s projection by 0.3 percentage point compared with July, citing strong domestic demand, activity in the services sector and AI investment.
Meanwhile, the surge in AI-related investment is expected to contribute to continued price pressures. The IMF projected global headline consumer price inflation at 4.7 per cent in 2026 before easing to 4.1 per cent in 2027.
IMF Warns of Higher Oil Prices and AI Investment Risks
The IMF’s outlook is based on assumptions that the Strait of Hormuz will reopen in March 2027, with shipping conditions broadly returning to pre-war levels by October 2027. The fund also assumed average oil prices of $96 per barrel in 2026 and $87 per barrel in 2027.
However, the report outlined a more adverse scenario in which an escalation of the conflict pushes oil prices to $130 per barrel through the first quarter of 2027. Under this scenario, global growth would be reduced by 0.2 percentage point in 2026 and 0.5 percentage point in 2027.
Inflation would also worsen, with the global rate for 2027 rising by an additional 1.1 percentage point to 5.2 per cent.
AI investment presents both opportunities and significant risks, according to the IMF. If adoption accelerates and investment grows faster than expected, global gross domestic product (GDP) could increase by an additional 0.6 per cent by 2029, with the United States and China receiving most of the benefits.
However, if AI fails to deliver the productivity gains investors anticipate, businesses could sharply reduce their spending on the technology. Under this scenario, US GDP could fall directly by 0.8 per cent, while the resulting effects on Asian technology exporters could reduce their combined output by as much as 0.4 per cent by 2028.
A decline in AI profitability could also trigger a sharp fall in asset prices and tighter financial conditions, leading to reduced consumer spending, particularly in the United States. Higher global bond yields could further weaken economic activity, producing a combined reduction in global output of 1.1 per cent by 2028, including a 1.8 per cent decline in US output.
The IMF also raised concerns about elevated public debt, particularly in advanced economies, warning that growing debt burdens could lead to sharply higher borrowing costs and weaken future economic growth.
The organisation urged governments to stop postponing measures to rebuild their financial reserves and develop credible medium-term plans to return public debt to sustainable levels. IMF officials are expected to press governments on these concerns during the annual meetings in Bangkok.
