Economic growth is projected at 3.1 per cent in 2026, according to the IMF, as artificial intelligence investment supports the global economy despite Middle East conflict and rising inflation
The International Monetary Fund (IMF) has raised its global economic growth forecast for 2026 to 3.1 per cent, as investment in artificial intelligence (AI) supports economic activity despite disruptions linked to the conflict in the Middle East.
In its latest World Economic Outlook, titled “Resilience Under Strain, Urgent Choices,” released on Tuesday, October 13, the fund projected global growth to slow from 3.5 per cent in 2025 to 3.1 per cent in 2026 before recovering to 3.4 per cent in 2027.
The 2026 projection represents an increase of 0.1 percentage point from the IMF’s July forecast, while its 2027 outlook remains unchanged from July but is 0.2 percentage points higher than the April estimate.
The fund warned that the global economy was becoming increasingly uneven, with growth concentrated in fewer countries and the benefits of economic expansion distributed according to exposure to energy supply disruptions and demand associated with artificial intelligence.
According to the IMF, 32 economies now account for 95 per cent of global growth, compared with 54 economies in April. It added that approximately 47 per cent of economies had their growth forecasts downgraded.
The fund explained that countries with limited exposure to energy supply shocks and strong links to the AI hardware supply chain were performing relatively well.
However, energy-importing economies with weaker connections to the technology investment boom, particularly many low-income countries, face higher import costs, currency pressures and declining real incomes.
The IMF’s baseline projection assumes that the Strait of Hormuz will reopen in March 2027, with conditions broadly returning to pre-war levels by October 2027.
Before the conflict, the strategic waterway handled approximately one-quarter of the world’s seaborne oil trade, making disruptions to shipping through the strait a major risk to global energy supplies.
The fund estimated that the closure of the waterway would have reduced global economic growth by 0.9 percentage points in 2026 in the absence of alternative supply responses.
However, redirected Gulf oil supplies, increased production elsewhere, withdrawals from inventories and declining oil intensity in the global economy have helped limit the estimated impact to approximately 0.3 percentage points.
The economic consequences remain particularly severe for Gulf countries facing disruptions to energy production and transportation.
Saudi Arabia’s 2026 growth outlook was revised downward by five percentage points from the July projection to a contraction of 3.3 per cent.
Bahrain, Iraq, Kuwait and Qatar are also expected to record double-digit economic contractions in 2026, according to the report.
The IMF warned that global oil inventories were declining towards critical levels, increasing the risk of sharp price increases if supply disruptions persist.
Oil prices are projected to average $95.74 per barrel in 2026, approximately 41 per cent higher than in 2025, before falling to $87.39 per barrel in 2027.
The fund also projected an increase in global headline inflation, from 4.1 per cent in 2025 to 4.7 per cent in 2026, before easing to 4.1 per cent in 2027.
Compared with its April projections, the IMF raised its inflation forecasts by 0.3 percentage points for 2026 and 0.4 percentage points for 2027.
It further warned that core inflation could remain above target in several major economies for an extended period.
Core inflation is not expected to return to two per cent until the end of 2027 in Japan and Britain, and by mid-2028 in the euro area and the United States.
The inflation outlook reflects the pressure that higher energy and food prices could place on production costs, transportation, household spending and broader economic activity.
Among major economies, the United States is projected to grow by 2.3 per cent in both 2026 and 2027, supported by consumer spending, fiscal policy and investment in technology.
The euro area is expected to expand by 1.1 per cent in 2026 and 1.2 per cent in 2027, reflecting the continuing effects of elevated energy prices and weak consumer confidence.
India’s economy is projected to grow by 7.0 per cent in both years, while Japan’s growth is forecast at 0.7 per cent in 2026.
Britain’s economy is expected to grow by 1.3 per cent in 2026.
The contrasting projections underscore the uneven nature of the global recovery, as economies benefit differently from technological investment and face varying levels of exposure to geopolitical tensions and energy market disruptions.
The IMF’s latest outlook identifies investment linked to artificial intelligence as an important source of economic support, helping offset some of the negative effects of the Middle East conflict.
However, the fund’s assessment suggests that the benefits are not being shared equally, with countries closely connected to AI-related supply chains better positioned than economies heavily dependent on imported energy.
The combination of geopolitical tensions, higher energy costs and rising inflation continues to pose risks to the global economic outlook.
The IMF’s projections indicate that although global economic activity is expected to expand in 2026 and strengthen in 2027, the recovery remains vulnerable to prolonged energy disruptions and widening differences in economic performance across countries.
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