According to the International Monetary Fund’s (IMF) July 2026 World Economic Outlook Update, global economic growth is projected at three percent in 2026 and 3.4 percent in 2027, compared with an average of 3.5 percent in 2024-25.
The IMF stated that the slowdown reflects the negative impact of the war in the Middle East, partly offset by stronger demand generated by the global technology cycle driven by advances in artificial intelligence (AI). Global headline inflation is expected to increase from 4.1 percent in 2025 to 4.7 percent in 2026, before easing to 3.9 percent in 2027, indicating that the disinflation trend observed since early 2024 has stalled.
War and AI investment shape global outlook
The IMF stated that global growth is being shaped by two opposing forces: the negative supply shock caused by the conflict in the Middle East and the positive demand shock stemming from rapid AI adoption and technology investment. While the global economy has so far proven more resilient than expected, countries’ performances differ depending on their exposure to higher energy prices and their position in the global technology value chain. Energy exporters outside the conflict zone benefit from improved terms of trade, while economies with strong technology sectors also outperform despite higher energy costs. Conversely, energy-importing countries with limited participation in the technology sector face weaker economic activity.
Commodity prices remain elevated despite easing from their April peaks following ceasefires and an understanding between Iran and the United States. Energy prices are estimated to remain approximately 25 percent above prewar levels. The IMF expects the average petroleum spot price to reach $89 per barrel in 2026, representing a 32 percent increase compared to 2025, while natural gas prices are projected to rise 22 percent.
Global financial conditions have eased since April despite higher expected policy interest rates. Strong corporate earnings, particularly among AI-related companies, have supported equity markets, while policy rate expectations have increased in response to higher inflation. The IMF noted that financial conditions remain accommodative by historical standards, although long-term sovereign bond yields have increased across many countries.
Advanced economies to post modest growth
The IMF projects advanced economies to grow by 1.7 percent in 2026 and 1.8 percent in 2027. US GDP growth is forecast at 2.3 percent in 2026 and 2.2 percent in 2027, broadly unchanged from April. Growth in the euro area is projected at 0.9 percent in 2026 and 1.2 percent in 2027, reflecting weaker momentum and higher energy costs.
Meanwhile, the UK is expected to grow by one percent in 2026 before accelerating to 1.3 percent in 2027, while Japan’s growth is forecast at 0.6 percent in 2026 and 0.7 percent in 2027. Korea’s economy is projected to expand by 2.6 percent in 2026 and 2.5 percent in 2027, supported by strong semiconductor exports.
Emerging economies show mixed performance
Among emerging market and developing economies, growth is forecast to slow to 3.8 percent in 2026 before recovering to 4.5 percent in 2027. China’s growth is projected at 4.6 percent in 2026 as higher oil prices and structural challenges weigh on activity, while India’s economy is expected to grow by 6.4 percent, remaining one of the fastest-growing major economies. Malaysia is forecast to expand by 4.7 percent, Thailand by 1.9 percent, and Vietnam by 7.5 percent, supported by technology-related exports and investment.
Growth in the Middle East and Central Asia is projected to slow sharply to 0.7 percent in 2026 before rebounding to 6.5 percent in 2027, reflecting assumptions that the Strait of Hormuz gradually reopens between mid-July 2026 and March 2027. Saudi Arabia’s economy is expected to grow by 1.7 percent in 2026 and 5.5 percent in 2027. Commodity-importing countries in the Middle East and North Africa are expected to remain relatively resilient despite higher energy and food prices.
In addition, growth in emerging and developing Europe is projected at approximately two percent, with stronger commodity export revenues supporting Russia while energy-importing economies continue to face higher energy costs.
Trade growth slows as inflation remains uneven
World trade volume growth is forecast to slow from 5.0 percent in 2025 to 3.5 percent in 2026, before recovering to 4.3 percent in 2027, reflecting earlier front-loading of trade, tariff effects and adjustments in global supply chains.
Global inflation is expected to remain uneven across countries due to differences in exchange-rate pass-through, labor market conditions and services inflation. Core inflation is projected to return to target only gradually in several major economies, including the US, Japan, the euro area and the UK.
IMF highlights risks and policy priorities
The IMF identified renewed escalation of the Middle East conflict as the main downside risk, warning that it could increase commodity prices, prolong supply disruptions, tighten financial conditions and intensify inflationary pressures. Other downside risks include greater trade fragmentation, higher public debt vulnerabilities and a correction in AI-related asset valuations. Upside risks include faster normalization of energy markets, stronger AI investment, renewed international trade cooperation and structural reforms that raise medium-term growth.
The report recommended that central banks continue to prioritize price stability while maintaining clear communication and independence. Fiscal policy should provide only temporary and targeted support where necessary while rebuilding fiscal buffers. The IMF also emphasized structural reforms aimed at strengthening energy security, expanding digital infrastructure and AI readiness, improving productivity and enhancing international cooperation to support long-term economic growth.
