IMF holds 2026 global growth at 3.1% as energy shock and AI boom diverge
The International Monetary Fund published its October World Economic Outlook on 13 October, the second day of the IMF and World Bank Annual Meetings in Bangkok, projecting global growth of 3.1% in 2026 and 3.4% in 2027. The 2026 figure is 0.4 percentage points below last year's 3.5% and a touch above the Fund's July projection; the 2027 number is unchanged. The report carries the title "Resilience Under Strain, Urgent Choices".
The headline stability masks a sharp divergence in fortunes. According to the Fund, growth has been reallocated across countries according to their exposure to two forces: a war-driven energy shock emanating from the Middle East and a surge in demand linked to artificial intelligence. Economies benefiting from AI investment are offsetting the drag on those most affected by the conflict. Without the adjustments that energy markets have already made, the IMF estimates global growth this year could have been closer to 2.5%.
Advanced economies are projected to expand 2.1% in 2026 and 1.8% in 2027, while emerging market and developing economies slow to 3.7% this year before rebounding to 4.4% next year. The United States is forecast to grow 2.3% in each of 2025, 2026 and 2027, with the euro area at 1.1% this year and 1.2% next. The United Kingdom is seen at 1.3%, Japan at 0.7% and Canada at 1.1%. China is forecast at 4.5% in 2026 and 4.0% in 2027, and India at 7.0% on a fiscal-year basis.
The Middle East bears the brunt of the shock. The IMF projects the Middle East and Central Asia region to contract 0.3% in 2026 before growing 6.3% in 2027, with the United Arab Emirates shrinking 3.9% this year and rebounding 7.7% next year, a recovery the Fund says depends on shipping routes normalising and the Strait of Hormuz reopening. Gulf oil exporters face a sharp contraction in output and exports this year, Gulf News reported, citing the Fund.
Inflation is moving the wrong way. Global headline inflation is projected to rise from 4.1% in 2025 to 4.7% in 2026 before easing back to 4.1% in 2027, with core inflation at 3.9% this year and 3.7% next. The Fund's chief economist, Silvana Tenreyro, said the global economy "has been resilient, but that resilience is under strain with risks tilted to the downside", and warned that some of the buffers that have cushioned the shock, notably inventories and energy-efficiency gains, "are reaching their limits".
The report sets out an adverse scenario in which commodity prices stay elevated for roughly six more months, around 17% higher in 2026 and 40% higher in 2027 than in the baseline, which would lower growth and raise inflation across advanced and emerging economies. Other downside risks listed include a correction in AI valuations, high public debt interacting with higher borrowing costs, and El Nino-related weather disruption to commodity markets.
The policy prescription is restrictive on both fronts. Tenreyro said fiscal policy "must be restrained to contain demand pressures at a time of highly inflationary risks" and that countries with high debts and deficits "need to initiate a fiscal consolidation". The Fund also advises central banks to keep policy sufficiently tight to prevent second-round inflation effects. Managing director Kristalina Georgieva described accelerating AI infrastructure investment as a key reason growth has stayed near 3%, CGTN reported.
What to watch next: the IMF's Global Financial Stability Report and Fiscal Monitor complete the Annual Meetings package this week, and the Fund's January update will be the next formal revision. In the nearer term, the trajectory of energy prices and any change in Gulf shipping conditions will determine whether the Middle East rebound pencilled in for 2027 remains on the table.
