IMF says AI investment propping up global growth, but war and debt threaten outlook
The global economy will still manage to top 3% real GDP growth this year as strong AI investment offsets the energy shock from ‌the war in the Middle East, but downside risks are mounting and more countries are being left behind and vulnerable to rising debt loads, the International Monetary Fund said on Tuesday.
The International Monetary Fund (IMF) has reported that the global economy will continue to experience growth of over 3% real GDP growth this year, despite the ongoing conflict in the Middle East and the resulting energy shock. The IMF's World Economic Outlook predicts a global growth rate of 3.1% for 2026, a slight increase from their previous forecast of 3.0% in July.
The growth boost is attributed to strong investment in artificial intelligence (AI) infrastructure, which is expected to drive growth in key advanced economies and countries involved in AI hardware production, such as South Korea, Malaysia, Mexico, and Thailand, which is hosting the annual IMF and World Bank meetings in Bangkok.
However, the IMF warns that the global economic outlook is facing mounting risks. A prolonged conflict in the Middle East could put additional pressure on inflation and slow down growth. Other potential risks include worsening fiscal prospects, reassessments of AI profitability, and extreme weather events. The IMF also highlights a growing gap between countries benefiting from AI and those left behind, with just 32 countries accounting for 95% of global growth, compared to 54 countries in April.
Countries and companies have been quick to mitigate the impact of the oil price shock by drawing down reserves, substituting energy sources, and cutting demand. Without these measures, global growth would have fallen to 2.5% this year, but their effect is fading as the conflict persists. The IMF notes that a worsening war could push oil prices to $130 per barrel through the first quarter of 2027, reducing global growth by 0.2 percentage point in 2026 and 0.5 percentage point in 2027, and increasing inflation to 5.2% in 2027.
The IMF also warns about the risks associated with elevated public debt levels, particularly in advanced economies. These economies should refrain from delaying fiscal reforms and establish credible medium-term plans to reduce debt to sustainable levels. This advice will be pushed during the IMF and World Bank meetings in Bangkok.
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