IMF Warns Global Economy Faces Uneven Growth as War and AI Reshape Outlook

Washington,The International Monetary Fund (IMF) says the global economy has remained more resilient than expected despite major geopolitical and economic shocks, but growth is becoming increasingly uneven as the effects of conflict, energy disruptions, trade tensions and artificial intelligence investment pull economies in different directions.

In its July 2026 World Economic Outlook Update, the IMF projects that the global economy will expand by 3.0% in 2026 and 3.4% in 2027. The overall forecast is broadly unchanged from the IMF’s April assessment when measured cumulatively across the two years, although the composition of growth has changed significantly.

War and Technology Pull the Economy in Different Directions

The IMF describes the current global environment as being shaped by two powerful and opposing forces.

The first is the economic impact of the war in the Middle East, particularly through energy markets, transportation networks and supply chains.

The second is a strong investment cycle linked to artificial intelligence and advanced technology.

Countries heavily exposed to higher energy costs are facing greater economic pressure, while economies integrated into technology-related production chains are benefiting from stronger demand for AI-related goods and investment.

Global Inflation Is Expected to Rise

The IMF expects the global disinflation process to lose momentum in 2026.

Global headline inflation is projected to rise from 4.1% in 2025 to 4.7% in 2026, before declining to 3.9% in 2027.

Higher energy prices and continuing supply pressures are among the factors contributing to the temporary increase.

The IMF says policymakers therefore need to remain focused on maintaining price stability even as economies deal with other major challenges.

World Trade Growth Expected to Slow

International trade is also expected to lose some momentum.

The IMF projects global trade-volume growth to decline from 5.0% in 2025 to 3.5% in 2026, before recovering to 4.3% in 2027.

The slowdown reflects the effects of tariffs, earlier front-loading of trade activity and adjustments in international production and supply chains.

At the same time, technology-related trade flows are providing some support to global commerce.

Middle East Conflict Remains a Major Risk

The IMF identifies renewed escalation of conflict in the Middle East as one of the most immediate risks to its economic outlook.

A prolonged disruption could push commodity prices higher, create additional supply shortages and increase financial-market volatility.

Energy importers and economies with limited fiscal or financial buffers could be particularly vulnerable to another major energy shock.

The IMF also notes that the reopening and normalisation of important trade routes could produce a better-than-expected economic outcome if energy prices decline faster than anticipated.

AI Investment Provides an Important Support

Artificial intelligence has emerged as an unexpected source of economic momentum.

Strong investment in AI infrastructure and technology is boosting demand in economies that occupy important positions in global technology supply chains.

The IMF says stronger-than-expected technology investment represents one of the potential upside risks to its baseline forecast.

However, the organisation also warns that excessive expectations surrounding AI could eventually lead to financial-market corrections, creating wider macroeconomic risks.

Trade Fragmentation Could Increase Costs

Another major concern is the possibility of deeper fragmentation of international trade.

The IMF warns that renewed tariff disputes and additional trade restrictions could reduce economic output while increasing prices.

Restrictions affecting critical intermediate products could create supply bottlenecks with effects extending well beyond the industries directly targeted.

Retaliatory trade measures could further increase these pressures and disrupt international supply chains.

Fiscal Buffers Are Under Pressure

Governments are also entering this uncertain period with limited fiscal room.

The IMF has warned that elevated public debt in several major economies leaves financial markets more sensitive to concerns about fiscal sustainability.

Additional shocks could therefore result in tighter financial conditions, increased borrowing costs and weaker economic activity.

The Fund recommends rebuilding fiscal buffers while using government support selectively and temporarily where necessary.

Developing Economies Face Greater Vulnerability

The effects of the current economic environment are not evenly distributed.

Low-income economies that depend heavily on imported energy and have limited participation in technology-driven global value chains could face greater pressure.

At the same time, energy-exporting countries outside conflict zones may benefit from higher energy prices.

This divergence means that the global growth figure of 3.0% does not accurately describe the economic experience of every country.

IMF Calls for Stronger Economic Resilience

The IMF says governments should focus on rebuilding fiscal space, maintaining price stability and strengthening economic resilience.

It also emphasises the importance of structural reforms and international cooperation.

Greater cooperation could help reduce trade barriers, improve energy security and support investment. Stronger policies could also help economies take advantage of technological developments without allowing financial risks to build excessively.

Outlook Remains Uncertain

The IMF’s latest assessment presents a global economy that has avoided a deeper downturn but remains vulnerable to several major shocks.

Conflict, energy prices, inflation, trade fragmentation and financial-market repricing could weaken growth, while stronger AI investment, improved energy conditions and progress on international trade agreements could produce better outcomes.

The IMF therefore expects global growth to continue, but with significant differences between economies and considerable uncertainty surrounding the path ahead.

For policymakers, the challenge will be to preserve economic stability while adapting to a world in which geopolitical risks and technological transformation are increasingly shaping the global economy.

Source: International Monetary Fund, World Economic Outlook Update, July 2026.