AI GOLD RUSH BUOYS WORLD GROWTH, BUT IMF WARNS OF A FRAGILE 2027 AS OIL COSTS AND DEBT MOUNT
October 13, 2026
The International Monetary Fund (IMF) has raised its global economic growth forecast for 2026 to 3.1 per cent from its previous estimate of 3 per cent, as surging demand for artificial intelligence (AI) helps offset the economic damage caused by higher energy prices and geopolitical tensions. However, the organisation has warned that mounting debt, uneven technological gains and the prospect of financial-market disruption could threaten the outlook.
In its latest World Economic Outlook, released as global economic and financial leaders gather in Bangkok for the IMF and World Bank meetings, the Fund projected that the world economy would expand by 3.1 per cent in 2026, below the 3.5 per cent growth recorded in 2025. Global growth is expected to recover to 3.4 per cent in 2027, although the benefits of economic expansion remain unevenly distributed.
INDIA RETAINS ITS POSITION AS A GROWTH LEADER
India is projected to grow by 7 per cent in 2026, making it the fastest-growing major economy, despite a moderation from the 7.7 per cent expansion recorded in the previous year. China, the world's second-largest economy, is forecast to grow by 4.5 per cent, compared with 5 per cent in 2025.
The IMF attributed much of the recent momentum in Asian economies to the global AI investment boom, which has stimulated demand for semiconductors, computing equipment and other technology-related goods. Global trade expanded by 8.3 per cent between 2023 and 2025, while trade in AI-related goods surged by 29 per cent. Without the contribution of AI-related trade, overall trade growth would have been considerably weaker.
ENERGY SHOCKS THREATEN TO UNDERMINE THE RECOVERY
The improved global growth forecast comes against a difficult energy backdrop. The IMF expects oil prices to average approximately $96 per barrel in 2026, representing an increase of nearly 41 per cent. Global inflation is projected to rise to 4.7 per cent this year from 4.1 per cent in 2025.
Higher oil and gas costs are expected to weigh particularly heavily on developing economies that depend on energy imports and have limited participation in the global technology supply chain. Emerging and developing economies are forecast to grow by 3.7 per cent in 2026, down from 4.5 per cent in 2025, before recovering to 4.4 per cent in 2027.
The outlook is especially difficult for the Middle East and Central Asia, where economic activity is expected to contract in 2026 before rebounding in the following year. By contrast, the US economy is projected to grow by 2.3 per cent in both 2026 and 2027, while the euro area is expected to expand by 1.1 per cent in 2026.
AI BOOM BRINGS NEW FINANCIAL RISKS
The IMF has cautioned that the technology-driven expansion could prove vulnerable if investment expectations exceed actual productivity gains. A reassessment of the profitability of AI investments could trigger a correction in financial-market valuations, potentially weakening demand and economic growth.
The Fund has also highlighted cybersecurity threats associated with the expanding use of AI, alongside concerns over high public debt and rising borrowing costs. It has urged governments to strengthen public finances and reduce budget deficits, while central banks face the challenge of containing inflation without unnecessarily undermining economic activity.
The IMF's projections also assume that energy shipments through the Strait of Hormuz will resume by March 2027 and that demand associated with the AI boom will moderate over time. Any significant departure from these assumptions could alter the global outlook.
The latest assessment presents a world economy being sustained by technological investment even as energy shocks and geopolitical uncertainty threaten its foundations. For India, the projected 7 per cent growth rate offers a comparatively strong outlook, but continued expansion will depend on domestic economic resilience and the ability to navigate an increasingly uncertain international environment.
