The International Monetary Fund (IMF) on Tuesday has raised its 2026 global growth forecast to 3.1%, citing resilience in advanced economies and increased AI investment.
However, growth will still slow from 3.5% in 2025, while high energy prices linked to the US–Iran war pose significant risks, particularly for low-income countries excluded from the AI-driven investment boom.
Meanwhile, economic growth in the eurozone will slow to 1.1% this year before a slight acceleration in 2027, the IMF said, due to persistently high energy costs and weak consumer confidence.
The 2026 forecast in the latest World Economic Outlook by the International Monetary Fund was a slight upgrade of 0.2 percentage points from its July report and follows 1.2% growth last year.
Although eurozone GDP growth rebounded to 2.6% in the second quarter of this year after zero growth in the first three months, the fund expects inflation risks to persist well into next year.
The Middle East conflict and Russia’s ongoing war against Ukraine have sent oil and natural gas costs surging around the globe, a major threat to the eurozone and other economies that import most of their energy needs.
The IMF noted in particular that “gas inventories remain below seasonal norms in parts of Europe, leaving gas market conditions vulnerable to adverse weather ahead of the winter heating season”.
Inflation is forecast at 3.1% this year and 2.8% next year, well above the European Central Bank’s target of 2%.
That could require ECB interest rates that curb household spending and investment, with eurozone GDP expected to edge up to just 1.2% in 2027.
“Core inflation is expected to return to 2% only gradually,” the fund said, in the eurozone by mid-2028 and in Britain by the end of 2027.
Growth in Germany, Europe’s biggest economy, is expected to reach 1.3% this year, and Spain’s GDP growth will remain strong at 2.5%.
But France’s economy is seen expanding by just 0.4% this year, sharply below the 0.9% growth in 2025, with unemployment rising to 8.4% from last year’s 7.7%.
For Britain, the IMF raised its growth forecast for this year to 1.3%, up 0.3 percentage points from July.
But UK growth is expected to slow to 1.2% next year “as higher energy prices and long-term interest rates weigh on consumption and investment.”
Prolonged conflict in the Middle East could put additional pressure
The United States’ war on Iran, launched in February, has plunged the Middle East into violence and driven global energy prices higher as a result of Tehran’s retaliatory actions.
Prices of refined petroleum products remain 70% to 95% above pre-war levels, pressuring countries that depend on energy imports for economic activity.
The war is in its eighth month, and Tenreyro warned that “a prolonged conflict in the Middle East could put additional pressure on inflation and slow down growth.”
Energy-importing countries not exposed to the AI boom remain the most vulnerable, creating what the IMF called a “bifurcated outlook” in its WEO report.
The report said the twin economic forces of the war in Iran and the AI technology boom had created a “fragmented” world economy.
“Headwinds from a prolonged war and persistent geopolitical tensions could revive inflationary pressures, strain fiscal and external positions, and hit energy-importing and low-income countries hardest,” it said.
“At the same time, the current technology tailwind could stop abruptly if expectations about AI-related profits and productivity gains are reassessed, weakening investment and tightening financial conditions.”
China’s growth expected to slow
The world’s advanced economies were forecast to grow by 2.1% in 2026, with those in the AI supply chain, such as Taiwan and South Korea, posting significantly higher figures.
Growth in China, the world’s second-largest economy, was expected to slow by 0.5 percentage points to 4.5% this year, the IMF said, mainly due to weak domestic demand.
Global inflation remained set to accelerate to 4.7% in 2026, fuelled by the war in Iran and the AI boom, with effects spreading across both advanced and developing economies.
Call for urgent action
IMF Chief Economist Tenreyro warned that “urgent action” was required by all countries in the face of downside risks.
On the fiscal side, she called on governments to use only temporary and targeted measures to ease the burden on the public from high energy and other costs.
In lockstep, “monetary policy should remain firmly focused on price stability,” she added, indicating that interest rate hikes to curb high inflation were appropriate.
“The economy has been resilient, but that resilience is reaching its limits,” she said. “The task ahead is to move from coping to rebuilding, restoring fiscal space, and rebuilding supply-side resilience.”