Oil is the pivot of the whole outlook: the IMF’s base case assumes the Strait of Hormuz reopens in March 2027, so any slippage in that timeline or escalation toward its $130 scenario would hit growth and lift inflation, keeping central banks on a hawkish path. The higher oil price assumptions, at $96 a barrel this year and $87 next, effectively validate a prolonged risk premium in crude. AI-linked exporters such as South Korea, Taiwan-adjacent supply chains, Malaysia and Mexico are the clear relative winners in the forecasts, but the IMF’s AI-unwind scenario highlights how exposed those same markets would be to any reassessment of AI profitability, a risk reflected in today’s sharp Asian tech selloff. Warnings on public debt and borrowing costs add pressure on bond markets already struggling with high yields.
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The IMF says AI is holding the world economy up while the Iran war drags it down, and the forecast depends on both of those staying roughly where they are.
Summary:
The International Monetary Fund raised its forecast for global economic growth this year, saying strong investment in artificial intelligence is offsetting the energy shock from the war in the Middle East, but warned that risks are tilted to the downside and that a narrowing group of countries is driving expansion, Reuters reported.
In its World Economic Outlook, released as finance leaders gathered in Bangkok for the IMF and World Bank annual meetings, the fund forecast 2026 global growth of 3.1%, up from 3.0% in July but below 2025’s 3.5%. It kept its 2027 forecast unchanged at 3.4%. The IMF said the resilience is under strain despite oil prices that have stayed above $100 a barrel for a prolonged period. The fund’s deputy research director, Petya Koeva Brooks, told Reuters that global growth would have fallen to 2.5% this year without the steps countries and companies took to cushion the oil shock, but that their effect is fading as the war drags on.
AI is the main reason for the improvement. Upgrades went to advanced economies building AI platforms and especially to hardware suppliers, including South Korea, Malaysia, Mexico and Thailand. Yet the gains are increasingly concentrated: just 32 countries now account for 95% of global growth, down from 54 in April, and the IMF has downgraded 47% of economies since its April forecasts, including several energy importers outside AI supply chains.
The Gulf has been hardest hit. Saudi Arabia’s economy is now forecast to shrink 3.3% this year, compared with growth of 1.7% expected in July. Iraq, Kuwait and Qatar face contractions of around 16%, while Iran and the United Arab Emirates are also expected to fall into recession.
Among major economies, US growth is forecast at 2.3% in both 2026 and 2027. The euro zone outlook for this year was raised to 1.1%, helped by AI investment and defence spending, while China’s forecasts were trimmed to 4.5% for 2026 and 4.0% for 2027 as higher oil prices weigh on weak domestic demand. India remains the fastest-growing major economy at 7.0% for both years. Global headline inflation is projected at 4.7% this year and 4.1% next.
The outlook depends heavily on oil. The IMF assumes the Strait of Hormuz reopens in March 2027, with oil averaging $96 a barrel this year and $87 next. In an adverse scenario with oil at $130 through the first quarter of 2027, growth would be cut and 2027 inflation would climb to 5.2%. A sharp unwinding of AI investment, meanwhile, could reduce global output by 1.1% by 2028.
The IMF also urged governments to rebuild fiscal buffers and set out credible plans to bring debt back to sustainable levels, warning that high public debt raises the risk of sharply higher borrowing costs.
This article was written by Eamonn Sheridan at investinglive.com.
Source: Investing Live - News
