World economy holds up, nears limits of resilience, IMF says

The International Monetary Fund said global growth should pick up next year with a boost from AI investment, but warned the world economy is nearing the limits of its resilience as the energy squeeze persists and financial risks build.

Growth will accelerate to 3.4% in 2027, the fund said Tuesday in its World Economic Outlook. That’s unchanged from the last update in July, while the forecast for this year was raised slightly to 3.1%.

Businesses “have continued to adjust to repeated shocks” while markets — buoyed by an exuberant tech industry — have taken a “broadly benign view of the challenges,” the IMF said.

But it also outlined several reasons why that may not last.

The world has run down its energy inventories to absorb supply shortages since the US attacked Iran, and those buffers could wear thin as the conflict drags on. The artificial intelligence boom has powered demand for hardware and could deliver broad gains in productivity, but it comes with financial risks attached. And the recent surge in bond yields makes it urgent to trim budget deficits and public debts.

“The global economy has been resilient but that resilience its reaching its limits” and risks to growth are tilted to the downside, IMF Chief Economist Silvana Tenreyro said.

“We need to restore fiscal space,” Tenreyro said Tuesday at a press conference in Bangkok. “That’s the homework for everyone, to make sure that we’re resilient.”

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‘Lackluster’ outlook

Even with next year’s expected rebound, global growth would be lagging the 3.5% average over the previous two years, and the fund described medium-term prospects as “lackluster.”

One reason is that the boost from AI is so uneven, and the report highlights gaps that are opening up as the technology advances. Almost two-thirds of the extra trade in computing hardware is sourced from just two countries, Taiwan and South Korea, according to the IMF. Meanwhile the US and China accounted for more than 75% of net AI-related imports last year.

The result is that global economic growth rests on a narrower base. Only 32 economies now account for 95% of the overall expansion, the IMF said, compared with 54 countries six months ago.

Silvana Tenreyro

Whether the surge in AI-related demand “will transform into a positive supply shock in the long term by delivering faster productivity growth remains to be seen,” the IMF said. Meanwhile it’s “contributing to inflationary pressures and financial fragility.”

Still, the fund expects inflation to slow down next year. It forecasts that the global headline rate will fall back to 4.1% — where it was in 2025 — after spiking to 4.7% this year.

As for the budget challenges highlighted by the bond-market slump, the IMF said there’s an urgent need for “credible adjustment plans” to restore fiscal buffers.

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“The task ahead is to move from coping to rebuilding,” Tenreyro said.

France downgraded

The expected pickup in growth next year hinges on an acceleration in emerging and developed economies. In the advanced ones, the IMF sees the expansion slowing to 1.8%, from 2.1% this year.

It predicts growth of 2.3% in the US, the world’s biggest economy — a slight upgrade to the 2.2% forecast in July. For China the 2027 forecast is unchanged at 4%.

Among major economies, the hit to France stands out. Its economy is set to expand only 0.4% this year and 0.7% in 2027. Both figures are 0.2 percentage point lower than in the fund’s July forecasts.

Germany is expected to grow 1.1% in 2027, while growth in the UK will edge down to 1.2% as energy prices and high interest rates weigh on consumption.

Tenreyro said Asia has been “incredibly resilient” with the AI boom offsetting headwinds from commodity markets. “AI has has been a big driver of this strong performance and big drivers of the forecast revisions, upward revisions,” she said.

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