The global economy is expected to grow by 3.1% in 2026 and 3.4% in 2027, according to the International Monetary Fund’s latest World Economic Outlook. But the Fund warned on Tuesday that the outlook remains exposed to a possible reversal in artificial intelligence investment, mounting public debt and a prolonged conflict in the Middle East.
Continued spending on AI infrastructure has helped lift the 2026 growth forecast slightly from the IMF’s previous estimate. Demand for data centres, chips and related technology is supporting activity in several advanced economies and hardware-producing countries. However, the boost is unfolding alongside an energy shock that is keeping costs high for businesses and households.
A sharp AI pullback could hit output and markets
The IMF cautioned that if expected productivity gains from AI fail to materialise, investment and asset prices could fall sharply. Under one adverse scenario, the resulting financial and economic effects could leave global output 1.1% lower by 2028 than otherwise expected, with a larger impact on the United States.
A longer conflict in the Middle East presents another downside risk. If oil prices remain above $130 a barrel through the first quarter of 2027, the Fund estimates that global growth next year could be reduced by half a percentage point. Its baseline outlook assumes that shipping conditions around key routes gradually return towards normal.
Debt and borrowing costs add pressure
High public debt and rising bond yields could further constrain governments, increasing the cost of servicing existing obligations and leaving less room for investment. The IMF urged policymakers to set credible medium-term plans to stabilise debt and rebuild fiscal buffers.
The Fund’s outlook is not a prediction of an imminent global recession. Rather, it highlights how heavily current growth depends on a narrow set of drivers, particularly AI-related spending, while geopolitical and financial risks continue to build.
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