IMF flags AI downturn, Middle East war as global growth risks

The International Monetary Fund has raised concerns about potential global growth risks stemming from a possible slowdown in AI investment, mounting debt levels, and the ongoing conflict in the Middle East. The IMF projects global growth at 3.1% for 2026, an increase from the 3.0% forecast in July, driven by robust investment in AI infrastructure despite higher oil prices due to the war.

Growth for 2027 is predicted at 3.4%, contingent on the Strait of Hormuz reopening by March and shipping conditions returning to pre-war conditions by October 2027. A protracted war maintaining oil prices above $130 through early 2027 could reduce global growth by half a percentage point next year, while a sharp decline in AI investment could cut global GDP by 1.1% by 2028, including a 1.8% drop in US output.

IMF Managing Director Kristalina Georgieva emphasized the economy's dependence on AI, warning of potential downturns if the investment wanes. The IMF's Global Financial Stability Report underscores the need for vigilance against potential setbacks in AI investment and stock valuations. A correction in the AI market could reverberate through the real economy, diminishing broader asset prices and demand via a wealth effect.

Trade in AI goods surged by 29% between 2023 and 2025, outpacing global trade growth of 8.3% during the same period. However, the absence of AI trade would only result in 4.6% growth in overall trade. The risks extend to cybersecurity threats posed by AI and heightened public debt levels, exacerbated by inflation pressures from the war.

IMF officials stress the importance of fiscal discipline and debt reduction, cautioning against complacency in advanced economies. Nigeria's Finance Minister cautioned about the disproportionate burden of debt servicing on developing nations. Despite urging for fiscal consolidation, many governments, including major advanced economies, are moving in the opposite direction.