The International Monetary Fund has nudged up its global growth forecast for 2026 to 3.1%, citing resilience in advanced economies and a surge in artificial-intelligence investment. Yet the upgrade, delivered in the latest World Economic Outlook, masks a starkly uneven picture: the eurozone is expected to expand by only 1.1% this year, while energy-importing nations outside the AI boom face mounting pressure.
The 2026 figure is 0.2 percentage points higher than the IMF's July projection, but still marks a slowdown from the 3.5% growth estimated for 2025. The fund attributes the deceleration to persistently high energy prices linked to the US–Iran war and Russia's ongoing invasion of Ukraine, which have pushed oil and natural gas costs sharply higher across the globe.
Europe's fragile recovery
For the eurozone, the IMF sees growth slowing to 1.1% in 2026, a slight acceleration to 1.2% in 2027, but with inflation remaining stubbornly above the European Central Bank's 2% target. Consumer confidence is weak, and energy costs continue to bite. The fund specifically warned that "gas inventories remain below seasonal norms in parts of Europe", leaving markets vulnerable to a cold winter.
Germany, the bloc's largest economy, is expected to grow by 1.3% this year, while Spain remains a standout with 2.5% expansion. France, however, is forecast to manage just 0.4% growth, down from 0.9% in 2025, with unemployment rising to 8.4%. The IMF's projections come as eurozone bond markets signal stagflation risk, adding to concerns about the bloc's ability to shake off its malaise.
Inflation in the eurozone is projected at 3.1% this year and 2.8% in 2026, well above the ECB's target. The fund expects core inflation to return to 2% only gradually, reaching that level in the eurozone by mid-2028 and in Britain by end-2027. That could force the ECB to keep interest rates higher for longer, curbing household spending and investment.
Divergent fortunes across the continent
Britain, outside the eurozone, received a modest upgrade: the IMF now sees UK growth of 1.3% this year, up 0.3 points from July, but expects it to slow to 1.2% in 2026 as higher energy prices and long-term interest rates weigh on consumption and investment.
The fund's report highlights a "bifurcated outlook" driven by two forces: the war in Iran and the AI technology boom. Countries plugged into the AI supply chain, such as Taiwan and South Korea, are set to grow significantly faster than the advanced-economy average of 2.1%. Meanwhile, energy-importing low-income nations, excluded from the AI windfall, remain the most exposed to higher fuel costs.
China, the world's second-largest economy, is expected to see growth slow by 0.5 percentage points to 4.5% this year, mainly due to weak domestic demand.
Risks and policy prescriptions
IMF Chief Economist Silvana Tenreyro warned that "a prolonged conflict in the Middle East could put additional pressure on inflation and slow down growth". She called for "urgent action" from all governments, urging them to use only temporary and targeted measures to ease the burden of high energy costs. On monetary policy, she insisted that "monetary policy should remain firmly focused on price stability", signalling that interest rate hikes remain appropriate.
The report also cautioned that the AI-driven investment boom could reverse abruptly if expectations about profits and productivity are reassessed, which would weaken investment and tighten financial conditions. Global inflation is set to accelerate to 4.7% in 2026, fuelled by the war and the AI boom, with effects spreading across both advanced and developing economies.
Tenreyro concluded: "The economy has been resilient, but that resilience is reaching its limits. The task ahead is to move from coping to rebuilding, restoring fiscal space, and rebuilding supply-side resilience." The IMF's warnings echo those of Qatar's warning that the global economy is paying the price for the Iran war, and come as the IMF chief signals a return to austerity with global debt nearing 100% of GDP.
