IMF Says AI Investment Is Easing a Global Slowdown but Warns Resilience Is Running Out

IMF raises growth outlook as AI investment cushions war-driven pain

The International Monetary Fund raised its forecast for global growth this year, saying an AI-driven investment boom and fiscal support have helped offset some of the economic damage from higher energy costs and a regional war. But IMF economists warned that the worlds capacity to absorb shocks is narrowing and urged policymakers to rebuild buffers.

In its update released at the IMF and World Bank annual meetings in Bangkok, the fund now expects global GDP to expand 3.1% in 2026, up from the 3.0% forecast published in July but slower than last years 3.5% pace. The IMF left its 2027 forecast unchanged at 3.4%.

Inflation projections were nudged higher: the fund kept its 2026 outlook at 4.7% and now expects inflation of 4.1% in 2027, slightly above the 3.9% projection from July. The IMF estimates there is roughly a 35% chance global inflation will exceed 5% in 2027, up from about 30% in April.

IMF researchers highlighted two offsetting forces shaping the outlook. On the upside, large, front-loaded investment in AI spanning semiconductors, data centers and power capacity has provided a meaningful demand impulse that helped activity hold up in the first half of the year. On the downside, higher energy prices sparked by the Middle East war, drawdowns in global oil inventories and mounting fiscal strains are tightening conditions.

The global economy has been resilient, but that resilience is reaching its limits, Silvana Tenreyro, IMF economic counsellor and research director, told reporters. She urged governments to restore fiscal space, safeguard supply-chain security and preserve central bank independence as borrowing costs rise.

Uneven growth and concentrated momentum

The IMF said growth is becoming more concentrated. Thirty-two economies now account for 95% of global growth, down sharply from 54 economies in April. Countries with little exposure to the war-related supply shock and those benefiting from AI-driven demand are performing relatively well. Taiwan is forecast to grow 10.7% in 2026, South Korea 3.3% (up from 1.1% in 2025), and the United States is projected to expand 2.3% in both 2026 and 2027, supported by private consumption, fiscal support and technology investment.

Chinas growth forecast was upgraded to 4.5% for 2026 and is seen at 4.0% in 2027, despite weaker-than-expected Q2 momentum linked to sluggish consumption and property-sector strains. India remains the fastest-growing major economy, with the IMF raising its outlook to 7.0% for both 2026 and 2027, reflecting strong domestic demand, services activity and AI-related investment.

By contrast, regions exposed to higher energy import bills and outside the AI supply chain are under pressure. The euro zone is expected to post just 1.1% growth in 2026 amid elevated energy costs and weak consumer sentiment. The Middle East and Central Asia are projected to contract 0.3% in 2026, with several Gulf economies seeing sharp near-term declines before rebounds are expected in 2027.

The fund now expects the Strait of Hormuz a crucial artery for Gulf crude exports to reopen in March 2027 and for conditions to return to broadly pre-conflict levels by October 2027. IMF data show Gulf crude exports averaged about 88% of pre-conflict levels in September as traffic recovered.

Risks: AI exuberance, energy constraints and fiscal pressures

While AI-related investment has bolstered demand, the IMF warned it also raises inflationary pressures and financial fragility. The fund described the current AI wave as a large, front-loaded demand shock that channels massive capital into a narrow set of sectors before broad productivity gains are realized. If markets reassess AI profitability or if productivity gains disappoint, the IMF warned that excessive investment could reverse sharply. In a downside scenario where AI productivity fails to materialize, U.S. equities could drop roughly 20% and global growth could be as much as 1.1 percentage point below the baseline by 2028, with Asia about 1.7 percentage points lower.

Energy market dynamics are another vulnerability. The IMF says global oil reserves are being drawn down by about 2.7 million barrels per day and warned inventories are approaching levels that could trigger abrupt price spikes a development that could blunt the AI-led growth impulse. At the same time, advanced-economy benchmark yields have climbed to multidecade highs amid resurgent inflation, anticipated policy rates and fiscal concerns, raising borrowing costs for governments and firms financing AI projects.

Public debt is on an upward path: the IMF projects public debt in advanced economies will rise to about 115% of GDP by 2031 (from 108% in 2025) and to roughly 84% in emerging and developing economies (up from 74%). Primary deficits in many large economies remain larger than before the pandemic, and higher real interest rates plus shorter debt maturities add pressure as defense spending and other demands increase.

Given those constraints, the fund urged targeted, temporary support for households facing high energy and food costs and called for monetary policy to remain sufficiently restrictive to return inflation to target in a timely way.

Conclusion

The IMFs update paints a picture of a global economy holding up better than earlier this year, thanks in part to a surge of AI-related investment and cautious policy support. Yet the gains are uneven, concentrated in a shrinking group of economies and precarious vulnerable to energy shocks, a correction in AI expectations and rising fiscal stress. Policymakers face a narrow window to rebuild fiscal buffers and shore up supply-chain resilience before the global economys capacity to absorb further shocks is exhausted.