IMF growth forecasts
The IMF is forecasting global real GDP growth of 3.0% and 3.4% respectively in 2026 and 2027 (see Table 1). This is broadly unchanged relative to the April 2026 World Economic Outlook, with a small downward revision of 0.1 percentage points for 2026 and an upward revision of 0.2 percentage points for 2027.1
March PMIs: scent of stagflation
Investment Insights • Macro
2 min read
IMF: global economy in crosscurrents of war and technology
The International Monetary Fund (IMF) recently released its July World Economic Outlook (WEO) update.* Its projections for global real GDP growth in 2026 are marginally lower than in the April WEO and risks to the outlook are more balanced. Economist Sam Jochim summarises the notable points from the latest report.
Table 1. IMF World Economic Outlook real GDP growth projections (% change, year-on-year)
Source: IMF. Data as at 8 July 2026.
There are two key offsetting forces shaping the global growth outlook in the view of the IMF. The modest slowdown expected in 2026 relative to 2025 reflects the impact of the war in the Middle East. This is partially offset by accelerated momentum in the global technology cycle due to advances in artificial intelligence (AI). There are significant divergences between growth expectations for different economies, and these are highly influenced by countries’ exposure to the war and their position in the technology value chain.
In advanced economies, GDP growth is expected to be much stronger in the US than in the eurozone. The projections for the US are virtually unchanged, with the impact of the war cushioned by the US’ status as a net energy exporter. In the eurozone, GDP growth is projected to be slightly lower in 2026 than was expected in the April WEO. This is due to the drag from higher energy prices and weak consumer confidence.
In emerging market (EM) economies, growth is projected to slow to 3.8% in 2026 before recovering to 4.5% in 2027. The 0.1 percentage point downward revision for 2026 is driven by the large downward revision to the GDP growth estimate for the Middle East and Central Asia. This is symptomatic of a longer closure of the Strait of Hormuz compared to the assumption in the April WEO, and it also corresponds to a larger rebound in 2027.
Risks to the outlook
The IMF believes that risks to the outlook are more balanced than in April but remain tilted to the downside. The main risk stems from developments in the Middle East, whereby a reescalation of geopolitical tensions would lower GDP growth. The main transmission mechanism through which this would occur in the view of the IMF is higher commodity prices and supply shortages. Countries with limited reserves could see widened external imbalances and a higher probability of balance of payments stress.
Furthermore, eroded policy buffers could amplify this impact, with the use of fiscal resources to mitigate the direct impact of the energy price shocks having the potential to expose several major economies’ sovereign debt markets to a reassessment of fiscal sustainability. This was a theme highlighted in our Mid-Year Outlook.2 Such a scenario would result in tighter financial conditions and lower global growth.
Conversely, a reopening of the Strait of Hormuz that goes more smoothly than assumed - with lower-than-expected commodity prices as a consequence - would boost global growth. In an environment of heightened geopolitical tensions not purely focussed in the Middle East, the IMF also suggests that higher military spending could lead to stronger short-term GDP growth. In the long term, however, growth would be expected to be lower than if resources had been used for more productive uses.
A reignition of trade tensions is also highlighted by the IMF as a downside risk to global growth, particularly if tariff and nontariff restrictions are adopted by more economies. Measures targeting critical intermediate inputs could generate supply bottlenecks with disproportionately large effects on output.
Expectations regarding AI-related profitability and productivity gains represent a two-sided risk in the view of the IMF. If expectations are revised downward, investment in AI related sectors could decline sharply and this could lead to a correction for equities in AI-exporting economies and markets with high concentration in technology firms. This would weigh on private consumption through the wealth effect (consumers feel less financially secure and cut back on spending) and would subsequently lower global growth.
Conversely, if AI-related investment translates into efficiency gains faster than expected, medium-term growth could strengthen. These gains would be larger, according to the IMF, if they were accompanied by policies to ease energy and infrastructure constraints, and facilitate labour reallocation across sectors.
Stable outlook with more balanced risks
In conclusion, the global growth outlook appears broadly stable relative to the previous WEO. Headline growth is expected to remain close to its recent level, but the composition is expected to shift. Energy exporters and economies integrated in the technology value chain are diverging from the more vulnerable energy importers and economies excluded from the technology value chain. Risks to the outlook are more balanced than in the IMF’s April WEO, but they remain tilted to the downside and are concentrated around the war in the Middle East and the durability of the technology cycle.
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