IMF sees global growth slowing to 3.1% in 2026, inflation at 4.7%

Global economic growth is projected to slow from 3.5% in 2025 to 3.1% in 2026 before recovering to 3.4% in 2027, as the world economy continues to absorb geopolitical and trade shocks, according to the International Monetary Fund’s October World Economic Outlook.

Global headline inflation is expected to rise from 4.1% in 2025 to 4.7% in 2026, driven mainly by higher energy and food prices, before easing back to 4.1% in 2027. The IMF said the 2026 growth forecast was unchanged from April, while its 2027 projection was raised by 0.2 percentage point.

Why has the global economy remained resilient?

Strong AI-related investment, flexible supply responses, rerouted shipments, inventory drawdowns, fiscal support and lower energy intensity have helped cushion the impact of the Middle East war and trade tensions. The IMF said households and businesses have also adapted to repeated shocks, although these margins of adjustment are narrowing.

Economic activity in the first half of 2026 held up better than expected despite the prolonged Middle East conflict and continued trade tensions, while strong investment in artificial intelligence provided an additional source of demand.

The benefits have been uneven, however. Economies with strong links to the technology cycle or favorable energy positions have generally been better placed to withstand the shocks.

Energy-importing economies with little connection to the technology value chain face the most difficult conditions, including higher import costs, exchange-rate pressures, weaker real incomes, tighter fiscal space and fewer sources of offsetting demand. Many low-income and vulnerable economies fall into this group.

Risks remain tilted to the downside

The IMF said the margins that have allowed the global economy to absorb repeated shocks are not unlimited.

A prolonged stalemate or further escalation in the Middle East could keep energy and food prices elevated, revive inflationary pressures, weaken fiscal and external balances and weigh on growth.

Further disruptions to energy infrastructure, cyberattacks and extreme weather could amplify those effects.

A reassessment of expectations surrounding AI profitability and productivity could also reduce investment, trigger corrections in equity markets and tighten financial conditions, with repercussions for economies heavily integrated into technology supply chains.

Fiscal vulnerabilities and renewed trade tensions present additional downside risks.

On the upside, AI-related investment could remain stronger for longer and productivity gains from the technology could materialize faster than assumed. New trade arrangements could also improve predictability and resilience, while higher fossil-fuel prices could encourage greater investment in energy security.

IMF urges governments to rebuild fiscal space

The IMF said governments need to rebuild fiscal buffers as elevated debt, rising sovereign borrowing costs and growing spending demands reduce their room to respond to future shocks.

It called for credible fiscal adjustment plans combining stronger revenue measures with spending rationalization and institutional improvements.

Support provided in response to higher food and energy prices should be temporary, targeted and designed to avoid unnecessary economic distortions, the report said.

The IMF said governments facing cost-of-living crises should preserve price signals and rely mainly on temporary income support targeted at the most vulnerable households.

It found targeted transfers were more cost-effective than broad price-suppressing measures, which can require substantially greater fiscal resources to provide comparable protection.

The IMF also examined the international effects of corporate income tax changes.

Debt-financed corporate tax cuts can support domestic activity but crowd out investment elsewhere and generate negative international spillovers in the short term.

Over the longer term, those spillovers can turn positive through cross-border knowledge transfers. Lower tax revenues can nevertheless constrain domestic public investment and productive capacity, particularly in emerging market and developing economies that depend more heavily on corporate income tax revenue.