IMF raises global growth forecast for 2026, saying AI boom will offset war damage

BANGKOK — The International Monetary Fund has raised its forecast for global economic growth this year, saying an AI-driven investment boom could partially offset the impact of rising energy costs.

The IMF forecasts global economic growth to be 3.1% in 2026, up from the 3% forecast in July but slower than last year’s 3.5%. For 2027, the forecast remains unchanged at 3.4%.

The UN agency forecast inflation at 4.1% in 2027, higher than the 3.9% forecast in July, expected the Strait of Hormuz to reopen by mid-July and conditions to return to roughly pre-war levels by March 2027. For this fiscal year, we maintained our forecast of 4.7%.

The IMF currently estimates that the Strait of Hormuz will reopen next March and return to pre-war conditions by October. Gulf oil exports averaged 88% of pre-conflict levels in September due to increased traffic, the international organization said.

The report was released this week at the IMF and World Bank annual meetings in Bangkok. There, finance ministers and central bank governors from the Fund’s 191 member countries meet to discuss geopolitical tensions, rising public debt and artificial intelligence.

The IMF said AI-related investment has provided a “demand impulse” to the global economy, with economic activity holding up better than expected in the first half of the year despite Middle East wars and trade tensions. Financial markets also remained largely calm, although this may partly reflect “the excitement around AI,” the fund said.

So far, “the use of buffers and adaptive capacity have helped economies weather adverse shocks,” the IMF said, citing measures such as diversifying fuel sources and leveraging strategic reserves that have limited the energy market turmoil caused by Middle East wars.

But that cushion is “rapidly narrowing” in the short term, the paper said. Global oil reserves are declining by about 2.7 million barrels per day, approaching levels that could cause sharp price swings, and energy constraints could undermine AI-driven momentum. Growing concerns about the government’s fiscal health are also adding to the headwinds.

Overall growth has also become increasingly uneven. Thirty-two countries now account for 95% of global economic growth, down from 54 in April.

Countries with limited exposure to war-driven supply shocks and meeting AI-driven demand are holding out or even strengthening. Taiwan’s sales are expected to rise to 10.7% this year, and South Korea’s to 3.3%, further increasing from 1.1% in 2025 due to demand for semiconductors. The U.S. is expected to grow 2.3% in both 2026 and 2027, supported by consumer spending, fiscal policy and high-tech investment.

Energy importers outside this technology supply chain face higher import bills, lower real incomes, and less fiscal space. The eurozone is estimated to grow by just 1.1% this year due to rising energy costs and weak consumer confidence. The Middle East and Central Asia is expected to contract by 0.3% this year, with Bahrain, Iraq, Kuwait and Qatar facing double-digit declines and double-digit recoveries in 2027.

China’s growth rate is expected to be 4.5% this year and 4.0% in 2027, with rising oil prices and structural headwinds weighing on economic activity. Growth in the second quarter was 4.3%, weaker than expected, as sluggish consumption and tight real estate demand outweighed strong exports.

“The global economy is not simply slowing or accelerating, but growth is being reallocated to countries according to their exposure to war-induced supply shocks and AI-related demand strength,” the IMF said.

The IMF said that while AI has supported resilience, the investment boom is also increasing inflationary pressures and financial vulnerabilities.

“This is a large, front-loaded demand shock,” the report said, with huge investments pouring into sectors such as semiconductors, data centers and power generation before widespread productivity gains are realized.

A potential reassessment of AI-related profitability and productivity prospects could draw back excessive investment and force a sharp correction in stock prices. The IMF warned that in a scenario in which AI productivity gains do not materialize, U.S. stocks could fall 20%, global growth could fall 1.1% below baseline expectations by 2028, and Asia could fall 1.7%.

Benchmark yields in developed countries rose to multi-decade highs as a resurgence in inflation, expected policy rate developments and fiscal concerns raised borrowing costs, the IMF said. Adding to the pressure are technology companies borrowing to finance AI investments.

Public debt in developed countries is projected to reach 115% of GDP in 2031, up from 108% in 2025. In emerging and developing countries, it is predicted to rise from 74% to 84%. The primary budget deficits of the largest economies remain significantly higher than before the pandemic, and governments face higher real interest rates and shorter debt maturities as defense spending pressures increase.

The report said rebuilding fiscal space was “increasingly urgent” and urged governments to keep support to households facing rising energy and food costs “temporary, targeted and non-distortionary.”

According to the model, the probability that global inflation will exceed 5% in 2027 is about 35%, up from 30% in April. Risks remain “tilted to the downside,” the fund said.