IMF: Global Resilience Under Strain as Energy, AI Risks Mount

The Fund identified rising energy prices, higher borrowing costs and uncertainty around artificial intelligence (AI) as key threats to the global outlook.

 

Silvana Tenreyro, the IMF's Economic Counsellor and Director of its Research Department, spoke on Tuesday at a news briefing on the October 2026 World Economic Outlook (WEO), released at the 2026 IMF/World Bank Annual Meetings in Bangkok, Thailand.

 

The report is titled "Resilience Under Strain, Urgent Choices".

 

Tenreyro said global growth was projected at 3.1 per cent in 2026, 0.4 percentage points lower than in 2025, before recovering to 3.4 per cent in 2027.

 

She said two opposing forces were shaping the world economy: rising energy and commodity prices triggered by the war in the Middle East, and an investment and trade boom driven largely by AI.

 

According to her, higher energy and commodity prices amount to a negative supply shock that raises costs and holds back economic activity, while the AI boom is supporting demand, investment and trade.

 

Although the two forces affect activity in different ways, Tenreyro said both were pushing inflation up.

 

The IMF projects global headline inflation to rise to 4.7 per cent in 2026 and ease to 4.1 per cent in 2027. Core inflation is expected to moderate to 3.9 per cent in 2026 and 3.7 per cent in 2027.

 

Tenreyro added that rising borrowing costs in several advanced economies, combined with high public debt, had deepened fiscal concerns and increased risks to economic stability.

The outlook, she said, varies widely from country to country, depending on exposure to commodity prices, participation in AI-related activity and access to affordable financing.

 

Energy exporters outside the conflict region and economies closely tied to the AI investment cycle are expected to fare better, she said.

 

"Energy importers and countries with limited participation in the technology boom face weaker growth prospects.

 

"Many low-income countries and fragile states belong to the latter group," she said.

 

Tenreyro identified three major constraints on global economic resilience: persistent disruptions to energy supply, the concentration of AI-related investment and trade, and growing fiscal vulnerabilities.

 

On energy, she said renewed tensions in the Middle East had driven up prices of crude oil, gas and refined petroleum products, including diesel and jet fuel. A prolonged disruption to production and transport in the region, she warned, could push energy and other commodity prices higher still.

 

She noted, however, that several adjustment mechanisms had helped cushion the shock. These include rerouting energy supplies, raising production elsewhere, drawing down inventories, switching to alternative energy sources and improving energy efficiency.

 

"Without these measures, global growth in 2026 would have been 60 basis points lower at 2.5 per cent instead of the projected 3.1 per cent," she said.

 

But Tenreyro cautioned that some of these buffers, particularly inventories and energy-efficiency gains, were nearing their limits. She added that extreme weather linked to El Niño could further disrupt commodity markets and worsen supply pressures.

 

On AI, she said the technology-driven investment and trade boom had become an important engine of global growth.

 

However, she said supply chains concentrated in a small number of countries, sectors and companies created potential vulnerabilities. A correction in AI-related market valuations, or cybersecurity threats linked to the technology, could weaken growth and pose risks to financial stability.

 

"The third constraint is fiscal. Higher borrowing costs and interest payments can crowd out essential public spending and reduce governments' capacity to respond to future shocks," she said.

 

"There is a need for decisive policy action. Governments should exercise fiscal restraint, particularly in economies facing high debt and large deficits.

 

"Countries with significant fiscal vulnerabilities should begin consolidation measures to place budget deficits and, ultimately, public debt on a downward path," Tenreyro said.

 

She said any measures introduced to cushion the impact of higher prices should be temporary and targeted at the most vulnerable, while preserving market price signals.

 

On monetary policy, she urged central banks to stay focused on price stability and keep monetary conditions sufficiently restrictive to prevent second-round inflationary effects and bring inflation back to target.

 

The right policy mix, she said, would differ from country to country, depending on initial inflation levels, labour market conditions and exposure to technology and commodity shocks.

 

Tenreyro also stressed the importance of central bank independence in meeting inflation targets.

 

"The task ahead is to move from coping to rebuilding, restoring fiscal space and supply-side resilience," she said.