The projection represents a slowdown from 3.5 per cent growth in 2025, while the global economy is expected to recover to 3.4 per cent in 2027, according to the IMF’s 2026 World Economic Outlook (WEO) Update, titled “Resilience Under Strain, Urgent Choices”.
Silvana Tenreyro, Director of the IMF’s Research Department, disclosed this at a news briefing on the report, released on Tuesday at the 2026 IMF/World Bank Annual Meetings in Bangkok, Thailand.
Tenreyro said the global economy was being shaped by two opposing forces: rising energy and commodity prices triggered by the conflict in the Middle East, and a surge in investment and trade driven largely by AI.
She explained that higher energy and commodity prices were increasing production costs and constraining economic activity, while the AI boom was supporting demand, investment and international trade.
However, both developments were contributing to inflationary pressures, complicating efforts by governments and central banks to maintain economic stability.
The IMF projected global headline inflation to rise to 4.7 per cent in 2026 before declining to 4.1 per cent in 2027. Core inflation is expected to moderate to 3.9 per cent and 3.7 per cent, respectively.
Tenreyro also warned that rising borrowing costs in several advanced economies, coupled with elevated public debt, were increasing fiscal pressures and risks to economic stability.
She said economic prospects would vary across countries depending on their exposure to commodity prices, participation in AI-related activities and access to affordable financing.
According to her, energy-exporting countries outside the conflict region and economies closely integrated into the AI investment cycle were expected to perform better, while energy importers and countries with limited participation in the technology boom faced weaker growth prospects.
She noted that many low-income countries and fragile states belonged to the latter group.
Tenreyro identified persistent energy supply disruptions, the concentration of AI-related investment and trade, and growing fiscal vulnerabilities as three major constraints on global economic resilience.
On energy markets, she said renewed tensions in the Middle East had pushed up prices of crude oil, natural gas and refined petroleum products, including diesel and jet fuel.
She warned that prolonged disruptions to production and transportation in the region could trigger further increases in energy and other commodity prices.
However, she said measures such as rerouting energy supplies, increasing production elsewhere, drawing down inventories, switching to alternative energy sources and improving energy efficiency had helped cushion the economic impact.
According to Tenreyro, without these adjustment mechanisms, global economic growth in 2026 would have been 2.5 per cent, 0.6 percentage points below the projected 3.1 per cent.
She cautioned that some of these buffers, particularly inventory reserves and energy efficiency gains, were approaching their limits. Extreme weather events associated with El Niño could also disrupt commodity markets and intensify supply pressures.
On artificial intelligence, Tenreyro said technology-driven investment and trade had become important drivers of global growth, but warned that concentrated supply chains involving a limited number of countries, sectors and companies created vulnerabilities.
She added that a correction in AI-related market valuations and cybersecurity threats associated with the technology could weaken economic growth and threaten financial stability.
The IMF official also highlighted fiscal risks, noting that higher borrowing costs and interest payments could crowd out essential public spending and reduce governments’ capacity to respond to future economic shocks.
She urged governments, particularly those facing high debt and large budget deficits, to exercise fiscal restraint and begin measures to reduce deficits and place public debt on a sustainable downward path.
Tenreyro said any government support introduced to cushion the effects of higher prices should be temporary and targeted at vulnerable households, while preserving market price signals.
On monetary policy, she said central banks should remain focused on price stability and maintain sufficiently restrictive monetary conditions to prevent further inflationary pressures and return inflation to target levels.
She emphasised that policy responses should reflect individual countries’ inflation levels, labour market conditions and exposure to commodity and technology-related shocks, while underscoring the importance of central bank independence.
Tenreyro said governments needed to move beyond managing immediate economic pressures towards rebuilding fiscal capacity and strengthening supply-side resilience to better withstand future shocks.
