The International Monetary Fund has lowered its 2026 global growth forecast to 3.0%, down from 3.1% in April, as the world economy absorbs a prolonged Middle East energy shock, trade fragmentation and growing uncertainty over the durability of the artificial intelligence boom.
The Fund still expects growth to recover to 3.4% in 2027, but warned that the rebound remains vulnerable to renewed conflict, tighter financial conditions and a possible correction in AI-linked markets.
Key Overview
- Global growth is forecast at 3.0% in 2026 and 3.4% in 2027.
- Headline inflation is expected to rise to 4.7% this year before easing to 3.9% in 2027.
- World trade growth is projected to slow to 3.5% in 2026 from 5.0% in 2025.
- The IMF assumes an average oil price of $89 per barrel in 2026.
- The United States keeps a 2.3% growth forecast, while the euro area is cut to 0.9%.
- South Korea and other technology-linked economies benefit from strong semiconductor and AI demand.
War and Technology Pull the Global Economy Apart
The IMF’s July update describes a world economy being shaped by two powerful but opposing forces: the drag from the Middle East conflict and the boost from technology investment.
The Fund said the global economy has so far weathered the war shock better than feared, helped by inventory drawdowns, additional production outside the Gulf, lower energy intensity and a rising share of renewable energy.
At the same time, strong spending on AI infrastructure, semiconductors and data centres has supported economies positioned inside the global technology supply chain. That has helped offset weakness in countries that are heavily dependent on imported energy but have little exposure to the technology cycle.
The result is a highly uneven outlook. Energy exporters and AI hardware producers generally received stronger projections, while commodity importers with limited technology exposure faced downgrades.
Inflation Returns as Energy Costs Stay Elevated
The IMF’s inflation outlook deteriorated more sharply than its growth forecast.
Global headline inflation is now expected to rise to 4.7% in 2026, up 0.3 percentage points from the April forecast, before declining to 3.9% next year.
The Fund’s forecast assumes an average petroleum price of $89 a barrel in 2026, about 9% above the level used in its April reference forecast. It also projects crude oil prices to average 32% higher than in 2025, with natural gas and fertilizer costs also rising.
Higher energy, transport and food costs are expected to slow the disinflation trend that had been in place since early 2024.
The IMF assumes that the Strait of Hormuz will begin reopening in mid-July and gradually return to pre-war conditions by March 2027. A slower reopening or renewed escalation would put additional pressure on commodity prices and inflation.
Trade Growth Slows as Tariff Effects Persist
Global trade is also expected to lose momentum.
The IMF projects world trade volume growth to slow from 5.0% in 2025 to 3.5% in 2026, before recovering to 4.3% in 2027.
The slowdown reflects the fading impact of earlier front-loading ahead of tariffs, continued trade restrictions and the gradual rerouting of production chains.
Technology-related trade remains a major source of strength, however, particularly for economies exporting semiconductors and AI hardware.
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United States Holds Up as Europe Weakens
The IMF left its 2026 U.S. growth forecast unchanged at 2.3% and projects 2.2% growth in 2027.
The U.S. economy is benefiting from continued technology investment, relatively supportive financial conditions and its status as a net energy exporter, which reduces exposure to the worst effects of the oil shock.
The euro area, by contrast, saw its 2026 forecast cut to 0.9% from 1.1% in April. Higher energy costs, weak consumer confidence and soft momentum are weighing on activity.
Japan’s 2026 growth forecast was trimmed to 0.6%, while South Korea received one of the strongest upgrades among advanced economies, with growth projected at 2.6% as semiconductor demand offsets the impact of the war.
China Improves, India Slips Slightly
Among major emerging economies, China’s 2026 growth forecast was lifted to 4.6% from 4.4% in April.
India remains one of the fastest-growing major economies, although its 2026 projection was reduced slightly to 6.4% from 6.5%. Growth is expected to strengthen to 6.7% in 2027.
Emerging market and developing economies overall are forecast to grow 3.8% in 2026 before accelerating to 4.5% next year.
The Middle East and Central Asia face the sharpest short-term damage. Regional growth is projected at just 0.7% in 2026 before rebounding to 6.5% in 2027 as energy transport and output normalise.
AI and Renewed Conflict Remain the Biggest Risks
The IMF said risks remain tilted to the downside.
A renewed escalation in the Middle East could drive another spike in commodity prices, tighten financial conditions and worsen food insecurity in low-income economies.
The Fund also warned that an AI market correction could weaken financial markets and investment if investors sharply reassess future profitability.
For now, the world economy is avoiding a deeper downturn. But the IMF’s latest forecast shows that the recovery increasingly depends on an uneasy balance between expensive energy, geopolitical instability and continued technology-led investment.
Sources used: International Monetary Fund / Reuters
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