IMF says AI investment propping up global growth, but war and debt threaten outlook

The International Monetary Fund predicts that global growth will reach 3.1 percent in 2026, a slight improvement from the 3.0 percent forecast in July. AI investment is expected to drive this upward trend, particularly for countries involved in AI hardware development, such as South Korea, Malaysia, Mexico, and Thailand. However, the IMF warns that the global economy is facing multiple risks that could hinder growth, including the ongoing conflict in the Middle East, rising debt levels, and extreme weather events.

Currently, just 32 countries account for 95 percent of global growth, up from 54 countries in April. This growing disparity between AI-driven economies and those left behind is a cause for concern. Downward revisions to growth forecasts have become more frequent, with 47 percent of economies downgraded since the April predictions.

The Gulf countries directly affected by the US-Israeli war against Iran, including Saudi Arabia, Iraq, Kuwait, Qatar, and the United Arab Emirates, are among the hardest hit, with several projected to experience severe recessions.

In contrast, the US and Eurozone economies are expected to benefit from strong private consumption, tax cuts, and AI investments, with the Eurozone's growth forecast improving to 1.1 percent in 2026 from 0.9 percent in July. China's growth is also projected to remain stable, at 4.5 percent for 2026 and 4.0 percent for 2027, both slightly lower than the July forecasts due to higher oil prices. India remains the world's fastest-growing major economy, with forecasts of 7.0 percent growth for both 2026 and 2027.

The IMF forecasts global headline consumer price inflation at 4.7 percent in 2026 and 4.1 percent in 2027. The surge in AI investment could further pressure prices, but a scenario of slower AI adoption and reduced investment could lead to a significant decline in global GDP by 2029. Under an adverse scenario, where oil prices rise to $130 per barrel in the first quarter of 2027, global growth could decrease by 0.2 percentage point in 2026 and 0.5 percentage point in 2027, with inflation spiking to 5.2 percent in 2027.