By Atlantic Reports

The International Monetary Fund (IMF) has raised its global growth forecast for 2026 to 3.1 per cent, citing gains from artificial intelligence investment despite pressures from the Middle East conflict.

The upward revision does not mean growth is accelerating. In its latest World Economic Outlook, released on Tuesday and titled Resilience under Strain, Urgent Choices, the Fund projects growth to slow from 3.5 per cent in 2025 before recovering to 3.4 per cent in 2027.

The 2027 forecast is unchanged from July and 0.2 percentage points above the April estimate.

Growth gains becoming more concentrated

The IMF said 32 economies now account for 95 per cent of projected global growth, compared with 54 in its April outlook. About 47 per cent of economies had their growth forecasts downgraded.

The Fund described a redistribution of growth, shaped by countries’ exposure to energy disruptions and their participation in the AI investment boom.

Economies with limited exposure to energy shocks and strong links to AI hardware supply chains were performing better, it said.

Energy-importing countries with weaker connections to that investment, including many low-income nations, face higher import bills, currency pressures and declining real incomes.

For households in those economies, the consequences can include reduced purchasing power even where national output continues to grow.

Forecast rests on reopening of Hormuz

The IMF’s baseline assumes the Strait of Hormuz will reopen in March 2027, with conditions broadly returning to pre-war levels by October that year.

Before the conflict, the waterway handled about one-quarter of global seaborne oil trade, according to the Fund.

It estimated that the closure would have reduced global growth by 0.9 percentage points in 2026 without alternative supply responses. Redirected Gulf supplies, increased production elsewhere, inventory withdrawals and lower oil intensity have limited the estimated impact to about 0.3 percentage points.

The reopening timetable is a forecasting assumption, rather than a confirmed outcome. A longer disruption could alter the outlook.

Saudi Arabia’s growth forecast was cut by five percentage points from July to a projected contraction of 3.3 per cent in 2026.

Bahrain, Iraq, Kuwait and Qatar are expected to record double-digit contractions as disruptions affect energy production and transportation.

Higher oil prices add to inflation pressure

The Fund warned that global oil inventories were approaching critical levels, increasing the risk of sharp price rises.

It projects oil prices to average US$95.74 per barrel in 2026, about 41 per cent above 2025, before easing to US$87.39 in 2027.

Global headline inflation is forecast to rise from 4.1 per cent in 2025 to 4.7 per cent in 2026, then return to 4.1 per cent in 2027.

Compared with April, the IMF raised its inflation forecasts by 0.3 percentage points for 2026 and 0.4 percentage points for 2027.

Core inflation is not expected to return to two per cent until the end of 2027 in Japan and Britain, and mid-2028 in the euro area and United States.

Major economies follow different paths

The United States is projected to grow by 2.3 per cent in both 2026 and 2027, supported by consumer spending, fiscal policy and technology investment.

The euro area is expected to expand by 1.1 per cent in 2026 and 1.2 per cent in 2027, constrained by high energy prices and weak consumer confidence.

India’s growth is forecast at seven per cent in both years. Japan and Britain are projected to grow by 0.7 per cent and 1.3 per cent respectively in 2026.

The outlook points to continued global expansion, but with increasingly unequal gains. Its central uncertainty is whether technology investment and alternative energy supplies can sustain growth while prolonged disruption raises costs for countries, businesses and households least equipped to absorb them.

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